Suppose that the money supply increases. In the short run, this increases prices according to
A)both the short-run Phillips curve and the aggregate demand and aggregate supply model.
B)neither the short-run Phillips curve nor the aggregate demand and aggregate supply model.
C)the short-run Phillips curve, but not according to the aggregate demand and aggregate supply model.
D)the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.

Question

Quizplus · Accepted Answer

Both the short-run Phillips curve and the aggregate demand and aggregate supply model predict that an increase in the money supply will lead to higher prices in the short run. The Phillips curve suggests this through the inverse relationship between unemployment and inflation, while the AD-AS model shows it through shifts in the aggregate demand curve.

Suppose That the Money Supply Increases