Which of the following are true of the transition from the intial equilibrium to

Question

Which of the following are true of the transition from the intial equilibrium to the new short-run equilibrium? check all that apply. Unit costs of production increase. The demand for money increases. The interest rate rises. If the price level had remained the same, the change in real GDP woukld have beer____________ than the change depicted in the graph, which of the following explains why this is the case? As money demand rises, the effect of the rise In money supply on the interest rate is magnified. As money demand falls, the effect of the rise in money supply on the interest rate is magnified. As money demand rises, the effect of the rise in money supply on the interest rate is diminished. As money demand falls, the effect of the rise in money supply on the interest rate is diminished.

Explanation / Answer

(1) Correct options are:

- Demand for money increases (as AD shifts rightward from AD1 to AD2)

- As demand for money increases, interest rate rises (money supply remaining constant)

(2) If price level remained same, change in real GDP would be higher than change depicted in graph.

(3) As money demand rises, effect of rise in money supply on interest rate is diminished.

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