Answer to Question #277901 in Economics for Micha

Question

Use the aggregate demand aggregate supply model to explain how an expansionary monetary policy can affect output/income.

Answer 1

Expansionary monetary policy increases the money supply in an economy. The increase in the money supply is mirrored by an equal increase in aggregate demand (AD) and as a result Gross Domestic Product (GDP). This would lead to a higher prices and more potential real output.