If the economy is at potential output and the Fed increases the money supply, in the SHORT run the aggregate demand will likely:

Question

Quizplus · Accepted Answer

When the Fed increases the money supply while the economy is at potential output, it will result in an increase in aggregate demand. This is because the availability of more money in the economy will encourage consumers and businesses to spend more, thereby increasing overall demand. However, in the long run, this may lead to inflation and reduce the potential output of the economy.

If the Economy Is at Potential Output and the Fed