In an AD-AS diagram with an upward-sloping AS-curve, an increase in money supply will
A)increase output and the price level but not affect the interest rate
B)increase output, the price level, and the interest rate
C)increase output and the price level but lower the interest rate
D)decrease the interest rate, increase the price level, but leave output unchanged
E)increase the price level but leave output and the interest rate unchanged

Question

Quizplus · Accepted Answer

In an upward-sloping AS-curve, an increase in money supply will shift the AD-curve to the right, leading to an increase in output and the price level. However, as the output level rises, the demand for loanable funds increases causing the interest rates to drop. Therefore, answer choice C is the correct option.

In an AD-AS Diagram with an Upward-Sloping AS-Curve, an Increase