In the new Keynesian model,an unanticipated increase in the money supply causes
A)aggregate demand to increase along a stationary aggregate supply curve.
B)both aggregate demand and supply to increase.
C)aggregate demand to increase as aggregate supply decreases.
D)both aggregate demand and supply to decrease.

Question

Quizplus · Accepted Answer

According to the new Keynesian model, an unanticipated increase in the money supply results in an increase in nominal wages and prices in the short run. As firms gradually adjust their prices, the economy moves along a stationary aggregate supply curve. Thus, aggregate demand increases along this curve, leading to higher output and employment in the short run.

In the New Keynesian Model,an Unanticipated Increase in the Money