Suppose that the money supply increases. In the short run, this increases prices according to

Question

Quizplus · Accepted Answer

According to the quantity theory of money, an increase in the money supply leads to an increase in aggregate demand, which leads to an increase in prices in the short run. This relationship is captured by both the short-run Phillips curve and the aggregate demand and aggregate supply model, making choice A the correct answer.

Suppose That the Money Supply Increases