Over the last several years, the money supply in Indonesia as increased by 9 percent in 2003 to 14 pe in 2005 and 23 percent in 2007. At the same time, real GDP has grown steadily at over 4 percent ann
These changes would be shown as
i. rightward shifts of the AD curve
ii. a movement down along the short- run Phillips curve
iii. rightward shifts of the LAS curve

Question

Quizplus · Accepted Answer

An increase in the money supply in Indonesia would lead to a rightward shift of the aggregate demand (AD) curve as there is now more money in circulation for spending on goods and services. However, this increase in money supply does not necessarily impact the short-run Phillips curve, which relates the unemployment rate and inflation rate. Finally, with steady growth in real GDP, there is likely to be an increase in the country's productive capacity, leading to a rightward shift of the long-run aggregate supply (LAS) curve. Therefore, the correct answer is A, i and iii.

Over the Last Several Years, the Money Supply in Indonesia