As nominal money supply is steadily increased and the long-run AS-curve shifts to the right over time, we realize that
A)the price level decreases since the AS-curve shifts right while the AD-curve remains constant
B)the price level stays the same, while output continuously increases
C)the price level increases or decreases depending on the respective shifts in the AD-curve and the AS-curve, but the level of output is essentially determined by the shifts in the AS-curve
D)we will experience a substantial increase in inflation with very little increase in output
E)none of the above

Question

Quizplus · Accepted Answer

C) is correct because the price level's direction (increase or decrease) depends on the relative shifts of the AD (Aggregate Demand) and AS (Aggregate Supply) curves. The level of output is primarily determined by the shifts in the AS curve, especially in the long run, where the AS curve reflects the economy's potential output.

As Nominal Money Supply Is Steadily Increased and the Long-Run