According to the Keynesian view of aggregate supply,an increase in the money supply will:
A) Always cause inflation.
B) Cause inflation if the economy is at full employment.
C) Cause inflation only if aggregate supply is horizontal.
D) Never cause inflation.

Question

Quizplus · Accepted Answer

According to Keynesian economics, an increase in the money supply can cause inflation if the economy is at full employment since it will lead to an increase in aggregate demand. However, if the economy is operating below full employment, the increase in aggregate demand may lead to an increase in output instead of inflation. Therefore, choice A and D are incorrect. Choice C is incorrect because the horizontal aggregate supply curve is associated with the classical view.

According to the Keynesian View of Aggregate Supply,an Increase in the Money