Question

if the short run aggregate supply (sras) curve is horizontal, then the: a. classical dichotomy is satisfied. b. money supply cannot affect prices in the short run. c. money supply is irrelevant in the short run. d. money supply cannot affect output in the short run.

Answer 1

If the short-run aggregate supply (SRAS) curve is horizontal, then the money supply cannot affect prices in the short run.

Step-by-step explanation:

If the short-run aggregate supply (SRAS) curve is horizontal, then the money supply cannot affect prices in the short run. This is because a horizontal SRAS curve means that the quantity of output supplied is fixed regardless of the price level. In other words, an increase in the money supply will not lead to an increase in prices.

For example, if the SRAS curve is horizontal and the money supply increases, businesses will not increase their production levels or raise their prices. Instead, they will simply hold more cash as the demand for goods and services remains constant.

Therefore, the correct answer is b. money supply cannot affect prices in the short run.