Question

1) Briefly describe how an expansionary monetary policy policy can be depicted on the graph of Demand Vs Supply for goods and services (output for GDP), where the horizontal and vertical axes are the Quantity (Q) and the price (P) of goods and services, respectively.

2) Briefly describe how an expansionary monetary policy can be depicted on the graph of Demand Vs Supply for money, where the horizontal and vertical axes are the quantity and price of money respectively. (Remember, the "price of money" is interest rate).

Hint: How the expansionary monetary policy would move either demand or supply curve, and in which direction, and how it would affect the Q and P in each of the two above graphs.

Answer 1

Due to the expansionary monetary policy , taxes will reduce and government spending increase therefore demand will increase andshift upward to right and due to that price and quantity demanded also increase.

Here due to expansionary policy, money supply in economy increase and value of currency decreases. Due to decrease in value of currency , interest rate fall and national income will increase . Because at low interest rate investment will increase and nationa lincome will rise.