-In the above figure, if we start at AD1 and SRAS1, and the money supply increases unexpectedly, what would be the long-run equilibrium?

Question

Quizplus · Accepted Answer

An unexpected increase in the money supply would initially shift the AD curve to the right (from AD1 to AD2), leading to a higher price level and output in the short run (moving from E1 to E2). However, in the long run, as prices and wages adjust, the SRAS curve would shift left (from SRAS1 to SRAS2), moving the economy to a new equilibrium at E3 with a higher price level but the same level of output as initially.

-In the Above Figure, If We Start at AD1 and SRAS1