ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The fiscal and monetary policies affect the aggregate demand of an economy. Aggregate demand is the aggregated demand for services and goods complete in their production. Understanding aggregate demand is essential to further elaborate on how it is affected by various policies.

Detailed explanation-2: -Policymakers can influence aggregate demand with monetary policy. An increase in the money supply will ultimately lead to the aggregate-demand curve shifting to the right. A decrease in the money supply will ultimately lead to the aggregate-demand curve shifting to the left.

Detailed explanation-3: -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.

Detailed explanation-4: -The principal medium-term objective of monetary policy is to control inflation, so an inflation target is thus the centrepiece of the monetary policy framework.