Use the following figure to answer the questions : Figure 8.5: -In Figure 8.5,if equilibrium real output is Q₁ and full-employment real output is Q₂,an appropriate monetarist policy lever would be to increase A)AD by decreasing income taxes. B)AS by increasing the money supply. C)AD by reducing interest rates. D)AD by reducing government regulations.

Question

Quizplus · Accepted Answer

Monetarists believe that the economy is inherently stable at its natural rate of output, and that monetary policy can be used to maintain that level of activity. Therefore, to move from equilibrium real output to full-employment real output, a monetarist would choose to increase aggregate demand (AD). This can be achieved by reducing interest rates, which stimulates borrowing and investment, leading to an increase in consumption and aggregate demand. Therefore, the appropriate policy lever in this scenario would be to increase AD by reducing interest rates.

Use the Following Figure to Answer the Questions : Figure