The SRAS curve is upward sloping,there is a liquidity trap,and investment spending is sensitive to changes in the interest rate.According to the monetarist transmission mechanism,if the money supply increases the AD curve __________ and the price level __________.
A) does not change; does not change
B) shifts to the left; falls
C) shifts to the right; rises
D) does not change; rises
E) none of the above

Question

Quizplus · Accepted Answer

According to the monetarist transmission mechanism, an increase in the money supply will lead to a shift in the AD curve to the right, as there is more money available for spending. This increase in spending will lead to an increase in the price level, as there is more demand for goods and services. The fact that the SRAS curve is upward sloping means that as prices increase, firms will be willing to supply more output, which supports the idea that the price level will rise in response to an increase in the money supply. The presence of a liquidity trap and investment sensitivity to interest rates is not relevant to this question.

The SRAS Curve Is Upward Sloping,there Is a Liquidity Trap,and