Which of the following would tend to increase AD?
A)an increase in the bank rate
B)a decrease in the money supply
C)a chartered bank using excess reserves to extend a loan to a customer
D)a chartered bank purchasing government bonds from the Bank of Canada as an investment

Question

Quizplus · Accepted Answer

When a chartered bank uses excess reserves to extend a loan to a customer, it increases the money supply and therefore increases aggregate demand (AD). This is because it puts more money into circulation, which can be spent on goods and services, creating a multiplier effect. The other options, such as an increase in the bank rate, a decrease in the money supply, or a chartered bank purchasing government bonds from the Bank of Canada, would decrease AD, either by reducing consumer spending or slowing down the money supply.

Which of the Following Would Tend to Increase AD