Monetary policy affects GDP and the price level by:

Question

Quizplus · Accepted Answer

Monetary policy directly affects the interest rates, which in turn impacts the aggregate demand for goods and services in an economy. By adjusting interest rates, the central bank can stimulate or slow down economic activity. Lowering interest rates by increasing the money supply will result in more borrowing and spending, which will increase aggregate demand and ultimately lead to an increase in GDP. On the other hand, raising interest rates will lead to less borrowing and spending, ultimately causing a decrease in aggregate demand and a potential decrease in GDP. The change in aggregate demand also affects the price level, as it increases demand for goods and services causing prices to rise and vice versa.

Monetary Policy Affects GDP and the Price Level By