Question

Suppose that a new Fed chair is appointed, and his or her approach to monetary policy can be summarized by the following statement: " i care only about increasing employment; inflation has been at very low levels for quite some time; my priority is to ease monetary policy to promote employment."

a) how would you expect the monetary policy curve to be affected, if at all?
b) what would be the effect on the aggregate demand curve?

Answer 1

The correct answer is

a) how would you expect the monetary policy curve to be affected, if at all?

the MP curve will shift downward because decreasing unemployment results in a loosening of monetary policy .

b) what would be the effect on the aggregate demand curve?

the AD curve will shift to the right .

good luck