-Refer to Figure 18.2.A decrease in the discount rate would most likely result in A)A decrease in the money supply and a move from AD₂ to AD₁. B)An increase in the money supply and a move from AD₁ to AD₂. C)A decrease in the money supply and a move from AS₂ to AS₁.

Question

Quizplus · Accepted Answer

A decrease in the discount rate makes borrowing cheaper for banks, encouraging them to borrow more from the Federal Reserve. This increases the money supply, which can lead to an increase in aggregate demand, moving from AD₁ to AD₂.