Aggregate Demand - Government policies and Aggregate Demand - Monetary Policy
4 important questions on Aggregate Demand - Government policies and Aggregate Demand - Monetary Policy
What happens if the quantity of money in the hands of households and firms changes?
Who controls the quantity of money in circulation?
- what happens when the central bank decreases the quantity of money in circulation?
- when the central bank increases the quantity of money in circulation
- households an firms have less money,
- which leads them to borrow more and lend less
- this effect is to increase interest rate any aggregate price level,
- leading to a reduces investment spending and higher consumer spending
- shifting the aggregate demand curve to the left
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How does monetary policy increase/decrease the aggregate demand
reducing the quantity of money shifts aggregate demand curve to the left
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