-Refer to Exhibit 14-1.What sequence of points shows the short- and long-run consequences of a rise in the money supply under monetarist assumptions?

Question

Quizplus · Accepted Answer

A rise in the money supply leads to an increase in aggregate demand, which shifts the AD curve to the right (from A to B). In the short run, this leads to an increase in output (from E to D) and a rise in the price level (from P1 to P2). In the long run, the increase in the money supply leads to an increase in the price level (from P2 to P3), but output returns to its original level (D).