Assuming an upward-sloping short-run aggregate supply curve, an increase in the money supply results in ________ in output and ________ in prices in the short run.
A) an increase; an increase
B) a decrease; a slight decrease
C) a decrease; no change
D) no change; an increase

Question

Quizplus · Accepted Answer

An increase in the money supply will lead to a decrease in interest rates, which in turn encourages investment and consumption. This increase in aggregate demand leads to an increase in output in the short run, but also puts upward pressure on prices as firms struggle to produce enough to meet the increased demand. Therefore, the correct answer is A.

Assuming an Upward-Sloping Short-Run Aggregate Supply Curve, an Increase in the Money