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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

How do expansionary, tight, contractionary, and loose monetary policy affect aggregate demand?

To determine

The effects of expansionary, tight, Contractionary and loose monetary policies on the aggregate demand is to be determined.

Explanation

Contractionary policy also known as tight monetary policy reduces the supply of loanable funds in the economy. As a result of which interest rates increase and aggregate demand reduces. It is basically an economic policy used to combat inflation. By decreasing the money supply through this policy in order to increase the cost of borrowing, inflation is dampened. On the contrary, expansionary policy also known as loose monetary policy increases the supply of loanable funds in the economy...

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