In the extended classical model,an anticipated increase in the money supply would cause output to ________ and the price level to ________ in the short run.
A)increase;increase
B)increase;not change
C)not change;increase
D)decrease;increase

Question

Quizplus · Accepted Answer

In the extended classical model, prices and wages are flexible in the long run but are fixed in the short run. Thus, an anticipated increase in the money supply would cause prices to increase in the short run (due to the increase in demand) but output would not change as prices and wages have not yet adjusted. Therefore, the answer is C, not change in output and an increase in price level.

In the Extended Classical Model,an Anticipated Increase in the Money