Question

If money from the Federal Reserve increases, will aggregate demand (AD) shift up and to the...

  1. If money from the Federal Reserve increases, will aggregate demand (AD) shift up and to the right or down and to the left? Show on a graph.
  2. If the wage rate decreases, will the short run aggregate supply (SRAS) shift up and to the left or down and to the right. Show on a graph.
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Answer #1

Increase in money supply shits the aggregate demand to the right. This is because more money in hands of people means they can they can consume more of goods and services. Due to this, aggregate demand increases and shifts to the right.

Due to decline in wage rate, the demand for workers will rise. More workers means that more production. Due to this, the short run aggregate supply curve will shift down or to the right.

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