FIGURE 27-4
-Refer to Figure 27-4. The economy begins in equilibrium at E0. Now consider an expansion of the money supply. What is the long-run effect of this change?

Question

Quizplus · Accepted Answer

An expansion of the money supply will shift the aggregate demand curve to the right, causing an increase in both the price level and real GDP in the short run. However, in the long run, prices will adjust and the economy will return to potential GDP at a higher price level, resulting in only a higher price level and no change in real GDP.

FIGURE 27-4 -Refer to Figure 27-4. the Economy Begins in Equilibrium at Equilibrium