Ad/As Analysis Of The Impact Of Expansionary And Contractionary Monetary Policy On The Equilibrium
Economics notes
Ad/As Analysis Of The Impact Of Expansionary And Contractionary Monetary Policy On The Equilibrium
➡️ Expansionary monetary policy is a type of policy used by central banks to increase the money supply in the economy, which is intended to stimulate economic growth. This is usually done by lowering interest rates, increasing the money supply, and reducing reserve requirements.
➡️ Contractionary monetary policy is a type of policy used by central banks to reduce the money supply in the economy, which is intended to slow economic growth. This is usually done by raising interest rates, decreasing the money supply, and increasing reserve requirements.
➡️ Both expansionary and contractionary monetary policies can be used to achieve a variety of economic goals, such as controlling inflation, stabilizing the economy, and promoting economic growth. However, it is important to note that these policies can have unintended consequences, such as increasing unemployment or creating asset bubbles.
How does expansionary monetary policy affect the equilibrium of the economy?
Expansionary monetary policy is when the central bank increases the money supply in the economy. This leads to an increase in aggregate demand, which in turn increases the equilibrium price level and real output.
How does contractionary monetary policy affect the equilibrium of the economy?
Contractionary monetary policy is when the central bank decreases the money supply in the economy. This leads to a decrease in aggregate demand, which in turn decreases the equilibrium price level and real output.
What are the implications of AD/AS analysis for the impact of monetary policy on the economy?
AD/AS analysis shows that expansionary and contractionary monetary policy can have a significant impact on the equilibrium of the economy. Expansionary monetary policy can lead to an increase in aggregate demand, which can lead to an increase in the equilibrium price level and real output. Contractionary monetary policy can lead to a decrease in aggregate demand, which can lead to a decrease in the equilibrium price level and real output.