If the economy is at full employment equilibrium, an increase in the money supply will cause a higher level of output and an increase in the price level.

Question

Quizplus · Accepted Answer

If the economy is at full employment equilibrium, there is no spare capacity for output to increase. Therefore, an increase in the money supply will only lead to an increase in the price level as demand exceeds supply for goods and services, creating inflation rather than increasing output.

If the Economy Is at Full Employment Equilibrium, an Increase