Question

In the aggregate demand and supply model, an increase in the quantity of money will directly shift:

a. The aggregate demand curve right.

b. The aggregate demand curve left.

c. The aggregate supply curve right.

d. The aggregate supply curve left.

Answer 1

The correct answer to this question is "A"

An increase in the money supply will shift the demand curve to the right. An increased money supply will give excess money in the hand of the people and they will demand more with that extra money increasing the aggregate demand and shifting the supply curve to the right.

Second, an increase in the money supply will bring the interest rates down, increasing the investment in the economy and because of more investment people will demand more increasing the demand curve to the right.