What happens to the aggregate demand curve?

    If the Fed increases the money supply by 7 percent then the aggregate demand curve will be shifted upward. This happens due to the quantity theory of money:

                                                              MV = PY.

    Since it is assumed that 𝑉 = 𝑉̅, the above equation indicates that 7 percent increase in money supply cause the proportionate increase in level of nominal output. In other words, for any given level of price, the output level is lower and vice versa.