Hi, I do not understand the logic of money supply, price level, and GDP.
The question says “In the short run, will an increase in the money supply increase the price level and real output ?” and the answer is “both will increase in the short run”.
Answer key says the increase in money supply will increase aggregated demand, thus the new short-run equilibrium will be at a higher price level and GDP.
I dont understand the logic. Could someone explain the logic and the relationship between Money Supply, Price level and GDP?