The aggregate demand-aggregate supply framework indicates that the long-run effect of a ________ in the money supply is an increase in ________,everything else held constant.
A)fall; aggregate output
B)fall; the price level
C)rise; aggregate output
D)rise; the price level

Question

Quizplus · Accepted Answer

According to the AD-AS framework, an increase in the money supply leads to a rightward shift in the aggregate demand curve. In the long-run, this leads to an increase in the price level, but no change in the level of aggregate output. Therefore, the correct answer is D - a rise in the money supply leads to a rise in the price level, everything else held constant.

The Aggregate Demand-Aggregate Supply Framework Indicates That the Long-Run Effect