When real GDP is less than potential GDP, an increase in the quantity of money leads to a(n)

Question

Quizplus · Accepted Answer

When real GDP is less than potential GDP, there are idle resources in the economy, so an increase in the quantity of money will increase aggregate demand, which will lead to an increase in real GDP and an increase in the price level. This is because there are unused resources that can be put to work when demand increases, so real GDP can increase without causing prices to fall.

When Real GDP Is Less Than Potential GDP, an Increase