Figure 16-4
-Refer to 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?
A)point a
B)point b
C)point c
D)point d

Question

Figure 16-4 
-Refer to 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?
A)point a 
B)point b 
C)point c 
D)point d

Quizplus · Accepted Answer

An expansionary monetary policy means that the central bank will increase the money supply, which will decrease interest rates and stimulate borrowing and spending. This will shift the AD curve to the right from AD1 to AD2, resulting in an increase in real GDP from Y1 to Y2 and an increase in the price level from P1 to P2. Therefore, the new equilibrium point will be at point b.

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