In the short run, it is likely that an increase in the money supply will cause both output and the price level to increase.

Question

Quizplus · Accepted Answer

According to the Quantity Theory of Money, an increase in the money supply will lead to an increase in aggregate demand, which will cause output to increase in the short run. However, in the short run, prices are somewhat sticky and do not fully adjust, so the increase in aggregate demand will also lead to an increase in the price level.

In the Short Run, It Is Likely That an Increase