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
Question
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
Solution
The correct answer is A. The aggregate demand (AD) curve shifts to the right, leading to increased real GDP and potential inflation.
Here's why:
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An expansionary monetary policy typically involves the central bank implementing measures to increase the money supply in the economy. This could be through lowering interest rates, purchasing government bonds, or reducing reserve requirements for banks.
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As the money supply increases, the cost of borrowing decreases. This encourages businesses to invest more and consumers to spend more, both of which increase the demand for goods and services.
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This increase in demand for goods and services is represented by a shift to the right of the aggregate demand (AD) curve in the AD-AS model.
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As the AD curve shifts to the right, the equilibrium level of real GDP and the price level both increase. This leads to an increase in real GDP.
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However, the increase in the price level also indicates potential inflation. This is because as demand for goods and services increases, businesses can charge higher prices for their products, leading to inflation.
Therefore, the likely outcome of an expansionary monetary policy in the AD-AS model is that the AD curve shifts to the right, leading to increased real GDP and potential inflation.
Similar Questions
In the AD-AS model(aggregate demand-aggregate supply), what is expected to happen if the government adopts expansionary fiscal policy while the central bank adopts contractionary monetary policy?A.Inflation rises in the short run，output falls in the long runB.Deflation rises in the short run, output rises in the long runC.Inflation rises in the short run, output rises in the long runD.Deflation rises in the short run, output falls in the long run
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.
In the AD-AS model, what happens if the central bank implements a contractionary monetary policy?A.The aggregate demand curve shifts to the right, inflation increases.B.The aggregate demand curve shifts to the left, inflation decreases.C.The aggregate supply curve shifts to the right, inflation decreases.D.The aggregate supply curve shifts to the left, inflation increases.
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.
When the economy is in a recession, expansionary monetary policy will reduce interest rates. Shift the aggregate demand (AD) curve on the graph below to show the impact of the Fed's actions on the economy.
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