An increase in the quantity of money leads to
A)an increase in short-run aggregate supply.
B)a decrease in net exports.
C)a decrease in real GDP.
D)a decrease in the price level.
E)an increase in aggregate demand.

Question

Quizplus · Accepted Answer

An increase in the quantity of money will lead to an increase in spending and consumption, which in turn will increase aggregate demand. This increase in aggregate demand will result in an increase in the price level in the short run, as producers may be unable to keep up with the sudden increase in demand. However, in the long run, firms may increase their production to meet the new level of demand, resulting in an overall increase in real GDP.

An Increase in the Quantity of Money Leads to