Question

In the short run, determine whether the following event causes a shift of a curve or a movement along a curve. Determine which curve is involved and the direction of the change. An increase in the quantity of money by the Federal Reserve increases the amount of money that people wish to lend, lowering interest rates.

This results in a leftward shift of the aggregate demand curve.

This results in a rightward shift of the aggregate demand curve.

This results in a rightward shift of the long-run aggregate supply curve.

Answer 1

Answer- Correct option is 'B'

An increase in the quantity of money by the Federal Reserve increases the amount of money that people wish to lend, lowering interest rates. This results in a rightward shift of the aggregate demand curve. The lower the interest rates, more willing people are to borrow money to make big purchases, such as houses or cars. When consumers pay less in interest, this gives them more money to spend which can create a ripple effect of increased spending throughtout the economy.