Figure 16-4

-Refer to the Figure 16-4.If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which of the following points in the short run?

Question

Figure 16-4
 
-Refer to the Figure 16-4.If the economy is at point a and the Bank of Canada pursues an expansionary monetary policy,then the economy will move to which of the following points in the short run?

Quizplus · Accepted Answer

Since the Bank of Canada pursues an expansionary monetary policy, it will increase the money supply in the economy, which will decrease the interest rates. As a result, the aggregate demand curve will shift to the right from AD1 to AD2, and the economy will move from point a to point b. At point b, output and price levels will be higher than they were at point a.

Figure 16-4 -Refer to the Figure 16-4.If the Economy Is at Point