In the aggregate-supply/aggregate-demand model based on
the quantity theory of money, the aggregate:
demand curve is vertical because money determines
demand curve is horizontal because velocity is assumed
supply is horizontal because price
level is assumed constant.
supply is vertical because
transactions are assumed fixed.
In the late 19th century
output in the U.S. grew rapidly but price level fell. How
could this be explained in terms of the
aggregate-supply/aggregate-demand curves based on the
quantity theory of money?
It cannot be explained because output
is assumed to be constant in the quantity theory.
The aggregate-supply curve shifted
left because output increased and aggregate demand
shifted right because money stock fell.
Aggregate supply shifted substantially
right because economic growth was strong and aggregate
demand shifted hardly at all because monetary growth
was very slow.
Aggregate supply shifted hardly at all
because money growth was slow while aggregate demand
shifted significantly right because economic growth