Use the following to answer questions . Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply -(Exhibit: Monetary Policy and Long-Run Aggregate Demand and Aggregate Supply) If the economy is at point c, an open market purchase would cause A) a shift of the short-run aggregate supply curve from AS₁ to AS₂. B) a shift of the short-run aggregate supply curve from AS₂ to AS₁. C) a shift of the aggregate demand curve from AD₁ to AD₂. D) a shift of the aggregate demand curve from AD₂ to AD₁.

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An open market purchase by the central bank increases the money supply in the economy, which leads to a decrease in interest rates and an increase in investment spending and consumption. This, in turn, leads to an increase in aggregate demand, shifting the AD curve to the right. Therefore, if the economy is at point c, an open market purchase would cause a shift of the aggregate demand curve from AD₁ to AD₂.

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