Question

In the AD-AS model, an increase in money growth will cause the growth rate of real GDP to increase in:

A) Both the short run and the long run.
B) Only the short run.
C) Only the long run.
D) Neither the short run nor the long run.

Answer 1

In the AD-AS model, an increase in money growth will cause the growth rate of real GDP to increase in both the short run and the long run.

Step-by-step explanation:

In the AD-AS model, an increase in money growth will cause the growth rate of real GDP to increase in both the short run and the long run.

In the short run, an increase in money growth will lead to an increase in aggregate demand (AD), which will cause a temporary increase in real GDP. This is because the increase in money supply stimulates spending and boosts economic activity.

In the long run, the increase in money growth will lead to an increase in the potential output of the economy, represented by a rightward shift of the aggregate supply (AS) curve. This will result in sustained economic growth and an increase in the growth rate of real GDP.