From an initial equilibrium in the AD-AS model,an unexpected increase in money supply growth will cause inflation:
A) and real growth to increase in the short run.
B) to increase and real growth to decrease in the short run.
C) to increase and real growth to remain unchanged in the short run.
D) and real growth to remain unchanged.

Question

Quizplus · Accepted Answer

An unexpected increase in money supply growth typically leads to lower interest rates, which boosts investment and consumption. This increase in aggregate demand can lead to higher output (real growth) and higher prices (inflation) in the short run, as prices and wages are sticky and do not adjust immediately.

From an Initial Equilibrium in the AD-AS Model,an Unexpected Increase