Exhibit 16-4 Aggregate demand and supply model

In Exhibit 16-4, which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Question

Exhibit 16-4 Aggregate demand and supply model In Exhibit 16-4, which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Quizplus · Accepted Answer

To shift the AD curve to the right, the Fed would need to increase aggregate demand. This could be done through expansionary monetary policy, such as buying government securities which would increase the money supply and lower interest rates, making it cheaper to borrow and encouraging more spending by consumers and businesses. A, B, and C are contractionary monetary policies that would decrease AD.

Exhibit 16-4 Aggregate Demand and Supply Model