Use the figure below to answer the following question(s).
Figure 14-9

AD₁ and SRAS₁ indicate the initial conditions in an economy,with the current level of output,Y₂,being the full employment level,and the current price level being P₁.
-Refer to Figure 14-9.If the Fed unexpectedly increases the money supply,the short-run impact of this policy will be a movement to
A)P₁ and Y₂.
B)P₂ and Y₁.
C)P₂ and Y3.
D)P₃ and Y₂.

Question

Use the figure below to answer the following question(s).
Figure 14-9
  
AD₁ and SRAS₁ indicate the initial conditions in an economy,with the current level of output,Y₂,being the full employment level,and the current price level being P₁.
-Refer to Figure 14-9.If the Fed unexpectedly increases the money supply,the short-run impact of this policy will be a movement to
A)P₁ and Y₂. 
B)P₂ and Y₁. 
C)P₂ and Y3. 
D)P₃ and Y₂.

Quizplus · Accepted Answer

An unexpected increase in the money supply typically leads to higher aggregate demand, causing the price level to rise to P₂ and output to increase to Y3 in the short run.

Use the Figure Below to Answer the Following Question(s)