Answer to Question #275950 in Economics for Nhlakanipho

Question

Use the aggregate demand-aggregate supply model to explain how an expansionary monetary policy can affect output/income

Answer 1

Expansionary monetary policy increases the money supply in an economy. The increase in the money supply is mirrored by an equal increase in nominal output, as a result the aggregate demand curve will shift rightwards. This would lead to a higher prices and more potential real output.