Suppose that the money supply increases. In the short run, this increases prices according to what theory?
A)both the short-run Phillips curve and the aggregate demand and aggregate supply model
B)neither the short-run Phillips curve nor the aggregate demand and aggregate supply model
C)only the short-run Phillips curve
D)only the aggregate demand and aggregate supply model

Question

Quizplus · Accepted Answer

In the short run, an increase in the money supply can lead to higher prices as explained by both the short-run Phillips curve, which shows an inverse relationship between inflation and unemployment, and the aggregate demand and aggregate supply model, where an increase in money supply shifts the aggregate demand curve to the right, leading to higher price levels.

Suppose That the Money Supply Increases