How does a tightening or easing of monetary policy by the Fed affect the aggregate demand curve?

A. Tightening of monetary policy shifts the aggregate demand curve to the left, while easing of monetary policy shifts the aggregate demand curve to the right.

B. Tightening of monetary policy shifts the aggregate demand curve to the right, while easing of monetary policy shifts the aggregate demand curve to the left.

C. Tightening or easing of monetary policy does not shift the aggregate demand curve.

D. None of the above are correct.

Expert Solution

Answer - option (a) Tightening of monetary policy shifts the aggregate demand curve to the lefy, while easing of monetarypolicy shifts the aggregate demand curveto the right.

Tightening of monetary policy means contractionary monetary policy and easing of monetary policy means expantionary monetary policy.

Rahul Sunny answered 2 years ago

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How does a tightening or easing of monetary policy by the Fed affect the aggregate demand curve?

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