According to Keynesians, an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects:
A) the horizontal portion of the aggregate supply curve.
B) the vertical portion of the aggregate supply curve.
C) the upward sloping portion of the aggregate supply curve.
D) either the horizontal or upward sloping portion of the aggregate supply curve.
E) either the horizontal or upward sloping portion of the aggregate supply curve

Question

Quizplus · Accepted Answer

According to Keynesians, an increase in the money supply will lead to inflation and higher prices. When the aggregate demand curve intersects the vertical portion of the aggregate supply curve, it means that the economy has reached its maximum production capacity, so any increase in demand will only lead to higher prices and not an increase in output. Therefore, an increase in the money supply will have its least impact on GDP when the aggregate demand curve intersects the vertical portion of the aggregate supply curve.

According to Keynesians, an Increase in the Money Supply Will