Asked by Danilo Seglio on Jun 29, 2024
Verified
Suppose that the money supply increases. In the short run, this increases prices 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 aggregate supply model.
D) the aggregate demand and aggregate supply model but not according to the short-run Phillips curve.
Phillips Curve
An economic theory that suggests an inverse relationship between the level of unemployment and the rate of inflation.
Money Supply
The full amount of economic monetary assets at a specific point in time.
Prices
The amount of money required to purchase a good, service, or asset, acting as a signal in the market to both buyers and sellers.
- Fathom the linkage between inflation, unemployment, and the short-run Phillips curve.
- Explore the consequences of changes in aggregate demand and aggregate supply for the economy.
Verified Answer
SA
Sarah AccettaJul 06, 2024
Final Answer :
A
Explanation :
Both the short-run Phillips curve and the aggregate demand and aggregate supply model predict that an increase in the money supply will lead to higher prices in the short run. The Phillips curve suggests this through the inverse relationship between unemployment and inflation, while the AD-AS model shows it through shifts in the aggregate demand curve.
Learning Objectives
- Fathom the linkage between inflation, unemployment, and the short-run Phillips curve.
- Explore the consequences of changes in aggregate demand and aggregate supply for the economy.