Using the aggregate supply and demand model, assume the economy is operating along the intermediate portion of the aggregate supply curve. An increase in the money supply will increase the price level and:
A) lower both the interest rate and real GDP.
B) raise both the interest rate and nominal GDP.
C) lower the interest rate and raise GDP.
D) raise the interest rate and lower real GDP.

Question

Quizplus · Accepted Answer

In the intermediate range of the aggregate supply curve, an increase in the money supply lowers interest rates (making borrowing cheaper, thus stimulating investment and consumption) and raises GDP (as increased spending leads to higher production and income).

Using the Aggregate Supply and Demand Model, Assume the Economy