An increase in the money supply can increase the price level,real GDP,or both,but it is impossible to tell exactly what will happen without knowing the slope of the aggregate supply curve.

Question

Quizplus · Accepted Answer

The impact of an increase in the money supply on the economy depends on the slope of the aggregate supply curve. If the aggregate supply curve is relatively flat, an increase in the money supply will lead to an increase in output, but little change in the price level. If the aggregate supply curve is relatively steep, an increase in the money supply will lead to a large increase in the price level, but only a small increase in output. Therefore, without knowing the slope of the aggregate supply curve, it is impossible to predict the exact impact of an increase in the money supply.

An Increase in the Money Supply Can Increase the Price