When the Fed enacts monetary policy, in the short run it changes
A) both the AD and SAS curves.
B) the SAS curve.
C) the AD curve.
D) potential GDP.

Question

Quizplus · Accepted Answer

When the Fed enacts monetary policy, it changes the money supply, which affects interest rates and aggregate demand (AD). Therefore, the Fed only changes the AD curve in the short run, not the SAS curve or potential GDP.

When the Fed Enacts Monetary Policy, in the Short Run