The items to the right describe policies that will cause aggregate demand (AD) t
ID: 1100570 • Letter: T
Question
The items to the right describe policies that will cause aggregate demand (AD) to shift from AD1 to AD2. Drag each scenario into the box adjacent to the graph showing the corresponding shift The Federal Reserve buys AD2 bonds from private banks AD1 A decrease in the discount rate. An increase in the Price Level required reserve ratio An increase in AS the money supply. A central bank Real GDP uses open market operations to conduct expansionary AD1 monetary policy AD2 A central bank sells bonds on the open market Price Level AS Real GDPExplanation / Answer
An increase in the nominal money stock leads to a higher real money stock at each level of prices. In the asset market, the decrease in interest rates induces the public to hold higher real balances. It stimulates the aggregate demand and thereby increases the equilibrium level of income and spending.Thus, the aggregate demand curve shifts rightward in case of a monetary expansion.
1) When there is rightward shift in AD curve, it is due to increase in money supply.
The federal banks buys bonds from Private Banks
A decrease in discount rate
A central bank uses open market operations to conduct expansionary monetary policy.
An increase in money supply.
2) When there is leftward shift in money supply, it is due to decrease in money supply
An increase in the required reserve ratio.
A central bank sells bonds on the open market.
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