Monetary policy involves the use of money and credit controls to:
A) Move the economy along the aggregate demand curve.
B) Move the economy along the aggregate supply curve.
C) Shift the aggregate demand curve.
D) Shift the aggregate supply curve.

Question

Quizplus · Accepted Answer

Monetary policy, through the manipulation of the money supply and interest rates by a central bank (like the Federal Reserve in the United States), primarily aims to influence the level of economic activity and inflation. By adjusting these factors, monetary policy can make borrowing more or less attractive, thereby increasing or decreasing spending and investment. This process shifts the aggregate demand curve to the left or right, depending on whether the policy is contractionary or expansionary, respectively. It does not directly move the economy along the aggregate demand or supply curves, nor does it typically aim to shift the aggregate supply curve, which would involve changes in the productive capacity of the economy.

Monetary Policy Involves the Use of Money and Credit Controls