Question

Take a look at Figure 11-4. If the Federal Reserve increases the quantity of money in circulation sufficiently to generate a rightward shift in the aggregate demand curve by $\$0.5$trillion, will actual equilibrium real GDP rise by this amount in the classical model? Explain.

Short answer

The actual equilibrium real GDP will not rise by this amount in the classical mode

Step-by-step solution

introduction

Whenever the Federal Reserve increments cash supply, the dispensable salaries of individuals increment. This expanded buying power increments AD. Thus, the AD bend movements to one side by$\$0.5$ trillion.

explanation

The economy is at point A where AD surpasses the likely GDP. As per the old-style model, point An is impractical over the long haul since an economy can't deliver more than gathering the expanded AD potential. In this manner, cost level ascents. It will keep on doing as such work the expansion clears out the abundance of buying power in the possession of individuals.