In the AD-AS Model, if the central bank implements an expansionary monetary policy (such as lowering interest rates), which of the following options most accurately describes the short-term changes in the Aggregate Demand (AD) curve and the Short-Run Aggregate Supply (SRAS) curve?A.AD shifts to the right; SRAS remains unchanged.B.AD shifts to the left; SRAS shifts to the right.C.AD remains unchanged; SRAS shifts to the left.D.AD shifts to the right; SRAS shifts to the left.
Question
In the AD-AS Model, if the central bank implements an expansionary monetary policy (such as lowering interest rates), which of the following options most accurately describes the short-term changes in the Aggregate Demand (AD) curve and the Short-Run Aggregate Supply (SRAS) curve?A.AD shifts to the right; SRAS remains unchanged.B.AD shifts to the left; SRAS shifts to the right.C.AD remains unchanged; SRAS shifts to the left.D.AD shifts to the right; SRAS shifts to the left.
Solution
The correct answer is A. AD shifts to the right; SRAS remains unchanged.
Here's why:
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An expansionary monetary policy, such as lowering interest rates, increases the amount of money in the economy. This makes borrowing cheaper, which encourages spending by businesses (on capital goods) and households (on consumer goods).
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This increase in spending leads to an increase in aggregate demand, which is represented by a shift of the AD curve to the right.
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The Short-Run Aggregate Supply (SRAS) curve, however, remains unchanged in the short term. This is because the SRAS curve represents the total quantity of goods and services that firms are willing and able to supply at a given price level. In the short term, factors that influence SRAS (like labor, capital, and technology) are typically fixed. Therefore, an expansionary monetary policy does not directly affect SRAS.
So, in the short term, an expansionary monetary policy will shift the AD curve to the right, while the SRAS curve remains unchanged.
Similar Questions
In the AD-AS (Aggregate Demand-Aggregate Supply) model, what is the likely outcome if the central bank implements an expansionary monetary policy?A.The aggregate demand (AD) curve shifts to the right, leading to increased real GDP and potential inflation.B.The aggregate demand (AD) curve shifts to the right, resulting in increased real GDP, but the impact on inflation depends on the position of the short-run aggregate supply (SRAS) curve.C.The aggregate supply (AS) curve shifts to the right, causing increased real GDP and lower inflation.D.The short-run aggregate supply (SRAS) curve shifts to the right, causing a decrease in real GDP and potential deflation.SUBMIT ANSWER
Which assumption is correct?A.An increase in the interest rate will shift the AD curve to the right.B.The impact of the negative supply shock will shift the SRAS upward.C.Changes in the price level can shift the AD curve.D.The short run aggregate supply curve is vertical.
In the Aggregate Demand-Aggregate Supply (AD-AS) model, consider an economy that is initially in long-run equilibrium. Which of the following events is most likely to cause both a leftward shift in the AD curve and a leftward shift in the SRAS (Short-Run Aggregate Supply) curve?This is a multi answer question. You can select one or more options as the answer.A.A global technological breakthrough that benefits all industries.B.A sudden and significant increase in global oil prices.C.A decrease in general consumer confidence across the economy.D.A broad reduction in import tariffs by the government.
According to the AD-AS (Aggregate Demand-Aggregate Supply) Model, which of the following statements is true?A.A) An increase in government spending will always result in higher inflation and output in the short run.B.A shift to the left of the short-run aggregate supply curve will lead to higher long-run economic growth.C.An increase in aggregate demand will only affect the price level in the long run, not in the short run.D.A decrease in the money supply will shift the aggregate demand curve to the right.
Within the context of the AD-AS Model, if there is a technological breakthrough that boosts productivity across all sectors of an economy, what is the immediate expected impact on the Short-Run Aggregate Supply (SRAS) curve?A.The SRAS curve will shift to the right.B.The SRAS curve will shift to the left.C.The SRAS curve will remain unchangedD.The direction of the SRAS shift is unpredictable.
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