Sia
Question
Statistics
Posted 10 months ago
The central bark inglemented manetary policy that resuloed in the shifs shown in the erapli:
Which of the following graplas Illustrates the effect of this change on the Aggregate Demand-Ageregate Supply model?
(A)
(D)
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Answer from Sia
Posted 10 months ago
Solution by Steps
step 1
To determine the effect of a monetary policy change on the Aggregate Demand-Aggregate Supply model, we need to understand the typical response of the AD and SRAS curves to such a policy
step 2
An expansionary monetary policy, which is typically implemented by a central bank, would lead to an increase in the money supply. This is represented by a shift to the right of the money supply curve (Sm to Sm')
step 3
The increase in the money supply would typically lower interest rates, leading to increased investment and consumption. This would cause the Aggregate Demand (AD) curve to shift to the right
step 4
The rightward shift of the AD curve would result in a higher price level (PL) and increased output (Y), moving from the initial equilibrium (Y1, PL1) to a new equilibrium (Y2, PL2)
step 5
Based on the information provided, we need to identify which graph shows a rightward shift of the AD curve while the SRAS and LRAS remain unchanged
Answer
The correct graph would show a rightward shift of the AD curve with a new equilibrium at a higher output and price level.
D
Key Concept
Monetary Policy and AD-AS Model
Explanation
An expansionary monetary policy typically results in a rightward shift of the Aggregate Demand curve in the AD-AS model, leading to higher output and price levels in the short run
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