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If the Fed orders an expansionary monetary policy, describe what will happen to the following variables...

If the Fed orders an expansionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy: The money supply Interest rates Investment Consumption Net Exports The aggregate demand curve Real GDP The price level

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Answer #1

IF the Fed has announced an expansionary monetary policy in the market then in that case the money supply in the market will increase and that will lower the interest rate in the market, at a lower interest rate in the market the investment will increase and a higher interest rate will increase the consumption because investment is part of the aggregate demand.

At a lower interest rate the currency will depreciate and that will increase the exports and decrease the imports in the market. The aggregate demand will increase and the GDP will increase with it. The price level will also rise.

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