If the short-run macroeconomic equilibrium occurs in the Keynesian range of the short-run aggregate supply curve, then an increase in the money supply will lead to:
A) an increase in the equilibrium price.
B) a decrease in equilibrium price.
C) an increase in equilibrium output.
D) a decrease in equilibrium output.

Question

Quizplus · Accepted Answer

In the Keynesian range of the short-run aggregate supply curve, the economy is at a level of output below full employment, where the aggregate supply is perfectly elastic. Therefore, an increase in the money supply would primarily increase aggregate demand, leading to an increase in equilibrium output without affecting the equilibrium price.

If the Short-Run Macroeconomic Equilibrium Occurs in the Keynesian Range