Figure 16-2

-Refer to the Figure 16-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

Question

Figure 16-2
 
-Refer to the Figure 16-2. Suppose the economy is initially at point c. If the money supply increases, where does the economy move to in the short-run?

Quizplus · Accepted Answer

An increase in the money supply will shift the AD curve to the right, leading to a movement along the SRAS curve to a new equilibrium point. As point D represents the new equilibrium where AD intersects with the SRAS curve, B is the correct choice. Points a and b are not feasible as they lie outside the SRAS curve, and point E is not a possible outcome of the shift in the AD curve.

Figure 16-2 -Refer to the Figure 16-2. Suppose the Economy Is Initially