The graph shown displays various price and output levels in an economy. If the economy is currently at point E₂, what would be the impact of expansionary monetary policy? A) Higher prices and higher output B) Higher prices and lower output C) Lower prices and higher output D) Lower prices and lower output

Question

Quizplus · Accepted Answer

Expansionary monetary policy will lead to an increase in the money supply, which will lower interest rates and increase investment and consumption. This will shift the aggregate demand curve to the right, resulting in higher prices and higher output.

The Graph Shown Displays Various Price and Output Levels in an Economy