Homework Answers
In the diagram it is shown that the supply curve is shifting to it's right and at the same time the interest rate is decreasing and the money supply is increasing.
This scenario is possible when the government injects money into the economy that is through expansionary policy
As the money supply increases the interest rate decreases and the firms as well as individuals can borrow more fund. This improves the aggregate demand as well as aggregate supply. As a resultant the GDP too increases.
First option.
Monetary policy that increases the money supply also increases the level of potential GDP.
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