Suppose that for several periods the aggregate demand and supply curves have been intersecting at the same point, and at full employment. The central bank increases money growth as a result of an unannounced policy change. Under the assumption of adaptive expectations the likely short-run result is __________ output and __________ price level.
A) rising; a rising
B) rising; an unchanged
C) unchanged; a rising
D) unchanged; an unchanged

Question

Quizplus · Accepted Answer

An increase in money growth will shift the aggregate demand curve to the right. In the short run, the economy will move to a higher output level and a higher price level due to the increase in aggregate demand. The adaptive expectations assumption means that firms may not immediately adjust their prices to the new demand level, which also contributes to the rise in prices.

Suppose That for Several Periods the Aggregate Demand and Supply