An increase in the money supply leads to an increase in equilibrium real GDP only if the

Question

Quizplus · Accepted Answer

An increase in the money supply shifts the aggregate demand curve to the right. If the aggregate supply curve is not vertical, then the increase in aggregate demand will lead to an increase in equilibrium real GDP. If the aggregate supply curve is vertical, then the increase in aggregate demand will result in an increase in the price level, but not a change in real GDP. The investment function and the shape of the aggregate demand curve do not determine the relationship between money supply and equilibrium real GDP.

An Increase in the Money Supply Leads to an Increase