FIGURE 4 MONETARIST THEORY ON MONEY SUPPLY
Monetarists argue that a change in output will last only for the short run; in the long run, the economy will move back to full employment. The economy begins in equilibrium at point e. An increase in the money supply of 10% shifts the aggregate demand curve from AD0 to AD1, resulting in higher short-run output, $16 trillion, and a higher price level at point b. Over time, the economy will move back to full employment output ($15 trillion), increasing the price level in the long run to 110 (a 10% increase) at point c. The long-run aggregate supply curve is vertical at the full employment output of $15 trillion.