Change in monetary policy -Refer to Figure 11.3. According to the diagrams to shift AD from AD₀ to AD₁ the central bank would: A) raise interest rates and reduce money supply accordingly thorough open market sales. B) lower interest rates and increase money supply accordingly through open market sales. C) raise interest rates and reduce money supply accordingly through open market purchases. D) lower interest rates and increase money supply accordingly through open market purchases.

Question

Quizplus · Accepted Answer

To shift the Aggregate Demand (AD) curve from AD₀ to AD₁, the central bank would lower interest rates and increase the money supply. This is typically achieved through open market purchases, where the central bank buys government securities to inject money into the economy, thereby lowering interest rates and stimulating demand.

Change in Monetary Policy