Consider the exhibit below for the following questions.Figure 20-1
-Refer to Figure 20-1. An increase in the money supply would move the economy from C to
A)B in the short run and the long run.
B)D in the short run and the long run.
C)B in the short run and A in the long run.
D)D in the short run and C in the long run.

Question

Consider the exhibit below for the following questions.Figure 20-1 
-Refer to Figure 20-1. An increase in the money supply would move the economy from C to
A)B in the short run and the long run. 
B)D in the short run and the long run. 
C)B in the short run and A in the long run. 
D)D in the short run and C in the long run.

Quizplus · Accepted Answer

An increase in the money supply would shift the AD curve to the right, leading to an increase in output and prices in the short run. This would move the economy from point C to point B. However, in the long run, prices will adjust fully to the increase in the money supply, which will cause the SRAS curve to shift leftward until the economy reaches potential output at point A. Therefore, the economy would move from point C to point B in the short run and from point B to point A in the long run.

Consider the Exhibit Below for the Following Questions