ECONOMICS
AGGREGATE DEMAND
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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An inwards shift of the AD
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An outwards shift of the AD
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An outwards shift of the AS
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An inwards shift of the AS
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Detailed explanation-1: -An expansionary (or loose) monetary policy raises the quantity of money and credit above what it otherwise would have been and reduces interest rates, boosting aggregate demand, and thus countering recession.
Detailed explanation-2: -Expansionary fiscal policy and expansionary monetary policy both shift the AD curve to the right. That means the combination of actions will surely shift the AD curve to the right; causing an increase in the price level and increase in real output.
Detailed explanation-3: -Changes in the Money Supply The Fed can shift the aggregate demand curve when it changes monetary policy. An increase in the money supply shifts the money supply curve to the right. Without a change in the money demand curve, the interest rate falls.
Detailed explanation-4: -An expansionary monetary policy will reduce interest rates and stimulate investment and consumption spending, causing the original aggregate demand curve (AD0) to shift right to AD1, so that the new equilibrium (Ep) occurs at the potential GDP level of 700. Figure 1. Expansionary or Contractionary Monetary Policy.