Question

Some analysts use the short-run and long-run effects on the aggregate demand–aggregate supply model to argue that expansionary monetary policy can’t affect employment in the long run because in the short-run monetary policy shifts the aggregate:

a. supply curve to the left, but over time the increase in prices shifts aggregate demand to the right so that GDP will end up going back to its same level of output with a higher price level.
b. demand curve to the left, but over time the increase in prices shifts aggregate supply to the right so that GDP will end up going back to its same level of output with a higher price level.
c. supply curve to the right, but over time the increase in prices shifts aggregate demand to the left so that GDP will end up going back to its same level of output with a higher price level.
d. demand curve to the right, but over time the increase in prices shifts aggregate supply to the left so that GDP will end up going back to its same level of output with a higher price level.

Answer 1

D.)demand curve to the right, but over time the increase in prices shifts aggregate supply to the left so that GDP will end up going back to its same level of output with a higher price level.

Expansionary monetary policy increases money supply in the economy and thus aggregate demand increases leading to shift in demand curve to right.