Consider the actions of the Fed in response to the Great Recession. Which of the following scenarios should the Fed be worried about if its objective is increasing aggregate demand?

Choose one:

A. People expect the Fed to respond to the downturn with an expansionary policy.

B. Increasing the money supply could decrease aggregate demand.

C. Monetary policy is effective in the long run.

D. Small changes in the federal funds rate would destabilize the economy.

Question

Business

Jayla Le

11 April, 20:26

Consider the actions of the Fed in response to the Great Recession. Which of the following scenarios should the Fed be worried about if its objective is increasing aggregate demand?

Choose one:

A. People expect the Fed to respond to the downturn with an expansionary policy.

B. Increasing the money supply could decrease aggregate demand.

C. Monetary policy is effective in the long run.

D. Small changes in the federal funds rate would destabilize the economy.

+5

Answers (1)

Know the Answer?

Natalia Melendez · Answer 1

The correct answer is letter "B": Increasing the money supply could decrease aggregate demand.

Explanation:

The Aggregate Demand is a macroeconomic term describing the total demand in an economy for all goods and services at any given price level in a given period. As such, aggregate demand is the demand for the gross domestic product of a country. The relationship between the price level and the goods and services provided is inversely proportional which implies that the price level rises, the goods and services will have less demand and vice versa.

In that case, if the money supply increases so will the price levels but the goods and services provided will see a dropdown so will the aggregate demand.