-In the above figure, if we start at AD₁ and SRAS₁, and the money supply increases unexpectedly, what causes the economy to get to the long-run equilibrium?

Question

Quizplus · Accepted Answer

In the long run, after an unexpected increase in the money supply, output initially increases, leading to higher wages as firms compete for labor. This causes the short-run aggregate supply (SRAS) to shift leftward, moving the economy back to long-run equilibrium.

-In the Above Figure, If We Start at AD₁ and SRAS₁