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What are the options available to monetary policy makers if the economy is experiencing a "recessionary...

What are the options available to monetary policy makers if the economy is experiencing a "recessionary GDP gap?

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Answer #1

ON the graph of aggregate demand and aggregate supply we need to find the monetary policy that can used by FED to fight the recession

The policy here can be used called expansionary monetary policy

In this the goal is to increase the money supply in the economy by lowering the interest rate

This will lead to have more investment, consumption and overall increase in the aggregate demand

Due to increase in the aggregate aggregate demand there is rightward shift of the aggregate demand curve and when we talk about the increase of money supply then it is shown by the the nominal interest rate and quantity of money graph shown below

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