In the short run, what is the likely effect of increasing the money supply on prices?

Unlock all questions

This demo includes only 20 questions. Upgrade to access hundreds of questions, flashcards, exam simulations, and disable ads.

Full question bankExam simulationsFlashcards
From $24.99Unlock all

Prepare for the TExES Business and Finance 276 Test. Study with flashcards and multiple choice questions, each with hints and explanations. Get ready for your exam!

Multiple Choice

In the short run, what is the likely effect of increasing the money supply on prices?

Explanation:
When the money supply grows in the short run, interest rates tend to fall, making borrowing cheaper and encouraging more spending and investment. That boost in demand shifts the aggregate demand curve to the right. Because prices and wages don’t adjust instantly (they’re sticky in the short run), the increased demand shows up first as higher prices rather than an immediate, proportional jump in output. So, the most likely outcome is that the price level rises.

When the money supply grows in the short run, interest rates tend to fall, making borrowing cheaper and encouraging more spending and investment. That boost in demand shifts the aggregate demand curve to the right. Because prices and wages don’t adjust instantly (they’re sticky in the short run), the increased demand shows up first as higher prices rather than an immediate, proportional jump in output. So, the most likely outcome is that the price level rises.

More Multiple Choice Questions
Subscribe

Get the latest from Examzify

You can unsubscribe at any time. Read our privacy policy