Over the last several years, the money supply in Indonesia as increased by 9 percent in 2003 to 14 percent in 2005 and 23 percent in 2007. At the same time, real GDP has grown steadily at over 4 percent annually. These changes would be shown as
I. rightward shifts of the AD curve
II. a movement down along the short-run Phillips curve
III. rightward shifts of the LAS curve

Question

Quizplus · Accepted Answer

The increase in the money supply and steady GDP growth would cause rightward shifts of the AD curve (I) due to increased spending and investment. The LAS curve (III) would also shift rightward due to the steady growth in real GDP, indicating an increase in the economy's productive capacity.

Over the Last Several Years, the Money Supply in Indonesia