FIGURE 27-4 Refer to Figure 27-4.The economy begins in equilibrium at E₀.Now consider an expansion of the money supply.The initial effect is

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An expansion of the money supply will shift the AD curve to the right, resulting in an increase in real GDP and the price level. Therefore, the new equilibrium will occur at a higher level of real GDP and a higher price level, represented by the intersection of the new AD curve (AD₁) and the original AS curve (A₀).