Suppose that the money supply increases.In the short run this decreases unemployment 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 supply model.
D)the aggregate demand and aggregate supply model,but not according to the short-run Phillips curve.

Question

Quizplus · Accepted Answer

According to the short-run Phillips curve, an increase in the money supply will decrease unemployment in the short run. This is because the increase in the money supply will lead to an increase in aggregate demand, which in turn will cause firms to increase production and hire more workers, leading to a decrease in unemployment. This same effect is also captured by the aggregate demand and aggregate supply model, where an increase in the money supply will shift the aggregate demand curve to the right, leading to an increase in output and employment in the short run. Therefore, choice A is the correct answer.

Suppose That the Money Supply Increases