Figure 14-3
-In Figure 14-3,assume the economy starts at an equilibrium at point d.If the Bank of Canada increases the money supply so that the new aggregate demand curve is AD₃,then the long run equilibrium will be at point

Question

Figure 14-3 
-In Figure 14-3,assume the economy starts at an equilibrium at point d.If the Bank of Canada increases the money supply so that the new aggregate demand curve is AD₃,then the long run equilibrium will be at point

Quizplus · Accepted Answer

The long-run equilibrium will be at point A because the increase in the money supply will lead to an increase in aggregate demand, which will shift the aggregate demand curve to the right. This will cause the price level to rise and the quantity of output to increase. In the long run, the economy will return to its natural level of output, which is at point A.

Figure 14-3 -In Figure 14-3,assume the Economy Starts at an Equilibrium at an Equilibrium