Figure 35-6
Use the graph below to answer the following questions.
-Refer to Figure 35-6.If the economy starts at C and the money supply growth rate increases,in the long run the economy
A)stays at C.
B)moves to B.
C)moves to F.
D)None of the above is consistent wit an increase in the money supply growth rate.

Question

Figure 35-6
Use the graph below to answer the following questions. 
-Refer to Figure 35-6.If the economy starts at C and the money supply growth rate increases,in the long run the economy
A)stays at C. 
B)moves to B. 
C)moves to F. 
D)None of the above is consistent wit an increase in the money supply growth rate.

Quizplus · Accepted Answer

An increase in the money supply growth rate would shift the AD curve to the right, causing both output and the price level to increase in the short run. However, in the long run, the increase in the money supply growth rate would lead to an increase in inflation expectations, which would shift the SRAS curve upward. The intersection of the adjusted AD and SRAS curves is the new long-run equilibrium point, which is at point F in the graph. Therefore, the economy would move to point F in the long run.

Figure 35-6 Use the Graph Below to Answer the Following Questions