Figure: AD and Monetary Policy Refer to the Figure

question 257

Multiple Choice

Figure: AD and Monetary Policy Refer to the figure. Suppose a given economy starts at point A in the figure. If the Fed engages in an expansionary monetary policy, what would you expect to happen in the short run?

• A) Aggregate supply will decrease because of higher wages.
• B) Aggregate demand will decrease because of higher interest rates.
• C) Aggregate demand will increase because of lower interest rates.
• D) The economy will move along the AD curve to a lower inflation rate.

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