Homework Answers
Solution:
1. people will spend the extra money, causing the aggregate demand curve to shift to the right and resulting in a boost to economic activity.
Explanation- If government increase the money supply, people will have money in their hand and will lead to an increase in consumer spending. This increase will shift the AD curve to the right.
2. buy treasury bonds.
Explanation- to increase in aggregate demand we have to increase money supply. To increase the money supply, the Federal Reserve can buy treasury bonds. So, to increase in aggregate demand the federal reserve would buy treasury bonds.
3. a decline in the price level.
Explanation- Contractionary monetary policy cause decreases in the money supply and a decline in the price level.
4. cause business investment to increase.
Explanation- An expansionary monetary policy will reduce interest rates, the business investment will be more.
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