In the model with sticky prices, in the short run a positive monetary shock leads to:

Question

Quizplus · Accepted Answer

In the model with sticky prices, a positive monetary shock increases household real money balances because the nominal money supply increases while prices do not adjust immediately. This increase in real money balances leads to an increase in the demand for goods, as households feel wealthier and are willing to spend more. There is a change in household's desired real money balances due to the initial shock and its effects on spending and prices, contradicting the notion of no change. Therefore, all of the statements are correct in the context of a positive monetary shock in the short run with sticky prices.

In the Model with Sticky Prices, in the Short Run