Monetary Policy Affects GDP and the Price Level By

question 294

Multiple Choice

Monetary policy affects GDP and the price level by:

• A) changing aggregate supply.
• B) changing aggregate demand.
• C) changing the aggregate amount of labour supplied.
• D) changing exports.

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Definitions:

Potential Output

The maximum amount of goods and services an economy can produce when it is fully employing its resources.

Aggregate Demand

The total demand for all goods and services in an economy at various price levels, over a specific time period.

Expansionary Gap

A situation where the actual output in an economy is higher than the potential output, often leading to inflation.

Potential GDP

The maximum output an economy can achieve when all resources are used efficiently and effectively, without causing inflation.