Question

g Suppose the Federal Reserve begins to increase the supply of money at an increasing rate. What impact would that have on GDP, unemployment, and inflation

Answer 1

Expansionary monetary policy shifts AD to the right.

What is Expansionary monetary policy?

• Expansionary policy, often known as loose monetary policy, expands the availability of money and credit in order to stimulate economic growth.
• During difficult economic circumstances, a central bank may use expansionary monetary policy to reduce unemployment and stimulate growth.

Impacts on GDP, unemployment, and inflation by the increase of supply of money:

• The Federal Reserve begins to grow the money supply at an increasing rate.
• The impact on GDP, unemployment, and inflation would be significant.
• AD is shifted to the right by expansionary monetary policy.

Therefore, expansionary monetary policy shifts AD to the right.

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