Using the aggregate supply and demand model, assume the economy is operating along the intermediate portion of the aggregate supply curve. An increase in the money supply will increase the price level and:
A) lower both the interest rate and real GDP.
B) raise both the interest rate and real GDP.
C) lower the interest rate and raise GDP.
D) raise the interest rate and lower real GDP.

Question

Quizplus · Accepted Answer

An increase in the money supply typically lowers interest rates, which encourages investment and consumption, leading to an increase in real GDP. In the intermediate range of the aggregate supply curve, both the price level and real GDP can increase.

Using the Aggregate Supply and Demand Model, Assume the Economy