In the aggregate demand-aggregate supply model, what will be the effects of an increase in the money supply in the short run?
A) an increase in the price level, and an increase in real GDP
B) a decrease in the price level, and a decrease in real GDP
C) an increase in real GDP, and a decrease in the price level
D) a decrease in real GDP, and an increase in the price level

Question

In the aggregate demand-aggregate supply model, what will be the effects of an increase in the money supply in the short run?  
A) an increase in the price level, and an increase in real GDP 
B) a decrease in the price level, and a decrease in real GDP 
C) an increase in real GDP, and a decrease in the price level 
D) a decrease in real GDP, and an increase in the price level

Quizplus · Accepted Answer

An increase in the money supply typically lowers interest rates, which stimulates investment and consumption. This leads to an increase in aggregate demand, which in the short run can increase both the price level and real GDP.

In the Aggregate Demand-Aggregate Supply Model, What Will Be the Effects