Question 36

The aggregate demand curve shifts to the right.

An expansionary monetary policy increases the money supply and lowers interest rates, leading to increased consumer spending and investment. This results in a rightward shift of the aggregate demand curve.

A) Shifts to the right

This option is correct because an expansionary monetary policy encourages borrowing and spending, which boosts overall demand in the economy. As consumers and businesses take advantage of lower interest rates, demand for goods and services increases, shifting the aggregate demand curve to the right.

B) Becomes steeper

This option is incorrect. A steeper aggregate demand curve would indicate that the same increase in price levels would lead to a larger increase in real output, which is not a direct result of an expansionary monetary policy. Instead, the curve shifts horizontally to reflect increased demand.

C) Shifts downward

This option is also incorrect. A downward shift would imply a decrease in aggregate demand, which contradicts the effects of an expansionary monetary policy. Such a policy is designed to stimulate demand, not reduce it.

D) Shifts to the left

This option is incorrect as well. A leftward shift in the aggregate demand curve would indicate a decline in demand for goods and services, which is the opposite effect of what is intended by an expansionary monetary policy. Such a policy aims to increase demand, not decrease it.

Conclusion

The correct answer, which states that the aggregate demand curve shifts to the right, accurately reflects the intended effects of an expansionary monetary policy. All other options fail to capture this relationship, either suggesting a decrease in demand or an incorrect change in the slope of the curve, which misrepresents the fundamental impact of such a monetary strategy.