Suppose there was an economic contraction caused by a shift in aggregate supply; suppose the central bank changes the money supply to offset the effects of that contraction. How would the effects of the change in money supply be reflected in the aggregate demand and aggregate supply model?
A)Aggregate supply would shift to the right
B)Aggregate supply would shift to the left
C)Aggregate demand would shift to the right.
D)Aggregate demand would shift to the left.

Question

Quizplus · Accepted Answer

When the central bank changes the money supply to offset an economic contraction, it typically increases the money supply, which lowers interest rates and stimulates investment and consumption. This causes the aggregate demand curve to shift to the right.

Suppose There Was an Economic Contraction Caused by a Shift