ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Monetary policy is thought to increase aggregate demand through expansionary tools. These include lowering interest rates and engaging in open market operations (OMO) to purchase securities. These have the effect of making it easier and cheaper to borrow money, with the hope of incentivizing spending and investment.

Detailed explanation-2: -Fiscal policy that increases aggregate demand directly through an increase in government spending is typically called expansionary or “loose.” By contrast, fiscal policy is often considered contractionary or “tight” if it reduces demand via lower spending.

Detailed explanation-3: -Changing the money supply and interest rates are all monetary policies. A decrease in the quantity of money will decrease the aggregate demand and an increase in the interest rate will decrease the aggregate demand since it will reduce inflation.

Detailed explanation-4: -When government spending decreases, regardless of tax policy, aggregate demand decrease, thus shifting to the left. The fourth term that will lead to a shift in the aggregate demand curve is NX(e). This term means that net exports, defined as exports less imports, is a function of the real exchange rate.

Detailed explanation-5: -Answer and Explanation: An expansionary monetary policy would most likely increase aggregate demand. An expansionary policy is one that increases money supply. This increases the supply of loanable funds in the market, and reduces interest rate.