Answer to Question #244482 in Macroeconomics for Zarah

Question

'Policymakers who can influence AD cannot offset the adverse effects of a recession due to a fall in AS'. Do you agree with statement? Explain your answer in words and using an AD-AS diagram. Brief note

Answer 1

The statement is not true. Under a recession policymakers play a role in employment of the necessary policy, for instance, increase supply of money, increase the quantity of loans, shift aggregate demand curve to the right and reduce interest rates. All these effects have a positive impact on aggregate supply.