Exhibit 20-4 Aggregate demand and supply model

-In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Question

Exhibit 20-4 Aggregate demand and supply model
 
-In Exhibit 20-4,which one of the following actions could the Fed use to shift the AD curve from AD₁ to AD₂?

Quizplus · Accepted Answer

Lowering the discount rate makes borrowing cheaper for banks, encouraging them to lend more, which increases the money supply and shifts the aggregate demand (AD) curve to the right from AD₁ to AD₂.

Exhibit 20-4 Aggregate Demand and Supply Model