Suppose that the money supply increases in the short run, this will increase prices according to...

Suppose that the money supply increases in the short run, this will increase prices according to __________.

Group of answer choices

both the short run Phillips curve and the aggregate demand and aggregate supply model

neither the short run Phillips curve not the aggregate demand and aggregate supply model

the short run Phillips curve but not the aggregate demand and aggregate

the aggregate demand and aggregate supply model but not the short Run Phillips curve

Solutions

Expert Solution

Increase in money supply increases the prices and real output in the short run. So, it can be said that increase in money supply increases the prices and decreases the unemployment in the short run.

According to short run Phillips curve there is is a negative relationship between inflation and unemployment. According to short run Phillips curve therefore an increase in money supply which decreases unemployment must increase price level.

In the aggregate demand and aggregate supply framework an increase in money supply lead to a rightward shift in the aggregate demand curve which leads to an increase in prices and output in the short run. Therefore according to aggregate demand and aggregate supply model, Increase in the money supply in the short run will increase prices.

As shown above the Increase in money supply in the short run will increase prices according to both the short run Phillips curve and the aggregate demand and aggregate supply model.

Therefore first option is correct.

Rahul Sunny answered 1 month ago

Next > < Previous

Related Solutions

Assume instead that an increase in the money supply raises real output in the short run....

Assume instead that an increase in the money supply raises real output in the short run. Explain with the help of a figure, the transition to long run equilibrium if the exchange rate undershoots relative to its long run value.

Use the short-run asset approach to predict the effect of a temporary increase in money supply...

Use the short-run asset approach to predict the effect of a temporary increase in money supply in the U.S. on expected future exchange rate of dollar against euro and spot exchange rate of dollar against euro.

16. Suppose the central bank increases the money supply in order to increase the equilibrium level...

16. Suppose the central bank increases the money supply in order to increase the equilibrium level of GDP. Which of the following conditions would lead to a large increase in GDP given the increase in the money supply? A. A small marginal propensity to consume B. A very steep investment schedule C. A very steep money demand schedule D. All of the above conditions

According to the quantity theory of money, if the money supply increases by 5%, the price...

According to the quantity theory of money, if the money supply increases by 5%, the price level falls by 5%. does not change. rises by 5%. rises by more than 5%.

According to the quantity theory of money, an increase in the money supply only raises the...

According to the quantity theory of money, an increase in the money supply only raises the price level in the long run. This is because A. the long-run aggregate supply is unaffected by the money supply, while the aggregate demand increases when the money supply increases. B. the long-run aggregate supply is lower when the money supply increases, while the aggregate demand is unaffected by the money supply. C. the short-run aggregate supply and the aggregate demand both increase. D....

When price level increases, why input prices are sticky in short run?

Analyze the short run and long run effects of an unanticipated decrease in the money supply...

Analyze the short run and long run effects of an unanticipated decrease in the money supply in the misperceptions model. Tell me what happens to output, the actual price level and expected price level in both the short run and long run.

According to the long run money market model, if money supply is growing at 4% in...

According to the long run money market model, if money supply is growing at 4% in the United States and 5% in the United Kingdom, while real GDP is rising at 2% in the United States, and at 1% in the United Kingdom, what will happen to the nominal exchange rate between USD and British pound? What is the rate of expected depreciation?

According to the long run money market model, if money supply is growing at 4% in...

what would be the effects of an increase in the money supply according to the classical...

what would be the effects of an increase in the money supply according to the classical theory of money and the monetarist theory of money?

Subjects