-Refer to the above figure. Suppose point A is the original equilibrium. If there is an increase in the money supply, the new long-run equilibrium is given by point

Question

Quizplus · Accepted Answer

An increase in the money supply shifts the aggregate demand curve to the right. In the long run, this leads to a higher price level but does not change the output level, which returns to its natural rate. Therefore, the new long-run equilibrium is at point C, where the price level is higher but output remains unchanged.

-Refer to the Above Figure