Answer to Question #134839 in Macroeconomics for Valerie

Question

Choose the correct answer
Suppose the central bank decides to pursue an expansionary monetary policy. Using the AD-AS model, what will be the impact in the economy?
A. Levels of total production will increase, while price levels decrease.
B. Levels of total expenditure will increase, while price levels decrease.
C. AD curve will shift to the left, showing a decrease in nominal GDP.
D. AD curve will shift to the right, indicating an increase in real GDP.

Answer 1

solution

expansionary monetary policy is to expanding the money supply faster than as usual or lowering interest rate.

so The increase in the money supply will lead to an increase in consumer spending. This increase will shift the AD curve to the right.

when money supply will increase then consumer spending will be also increase this effect will shift the aggregate demand curve to the right.

if money supply will increase then there will be equal increment in gross domestic product.

so (D) is correct option for given question.