Question 22
[Maximum number: 1]
What is the effect of an increase in the money supply on the interest rate and the aggregate demand (AD) curve?
interest rate
AD curve
falls
shifts left
rises
shifts left
falls
shifts right
rises
shifts right
CAIE A-Level Economics 5.3.4 Monetary Policy in AD/AS
Practise tracing expansionary or contractionary monetary policy through aggregate demand to output, prices and employment.
How this is tested
- shift AD after an interest-rate or money-supply change and identify the new equilibrium
- trace effects on real output, employment and the price level from the economy's starting point
- evaluate effectiveness using AD responsiveness, exchange rates and risks to growth