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-(Figure: AD-AS)Refer to Figure: AD-AS.If our economy is at equilibrium with low-level inflation and the Bank of Canada uses expansionary monetary policy,the initial effect is that _____ will shift to _____ and the economy will move from _____.

Question

Use the following to answer questions: 
-(Figure: AD-AS)Refer to Figure: AD-AS.If our economy is at equilibrium with low-level inflation and the Bank of Canada uses expansionary monetary policy,the initial effect is that _____ will shift to _____ and the economy will move from _____.

Quizplus · Accepted Answer

Expansionary monetary policy would increase the money supply and lower interest rates, which would shift the AD curve to the right (AD1 to AD2). This would result in an increase in both equilibrium price level (from P1 to P2) and real output (from Y1 to Y2).

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