According to the simple quantity theory of money in the AD-AS framework,when the money supply increases,the result is __________ in Real GDP and __________ in the price level.

Question

Quizplus · Accepted Answer

According to the simple quantity theory of money, an increase in the money supply leads to a proportionate increase in the price level. However, in the AD-AS framework, the increase in the price level is offset by a decrease in the short-run aggregate supply (SRAS) curve, as firms respond to the higher prices by producing more output. As a result, there is no change in real GDP in the short run. Therefore, the correct answer is (C) no change in real GDP and a rise in the price level.

According to the Simple Quantity Theory of Money in the AD-AS