Effect of Monetary Expansion On The AD Curve
An increase in the nominal money stock leads to a higher real money stock at each level of prices. In the asset market, the decrease in interest rates induces the public to hold higher real balances. It stimulates the aggregate demand and thereby increases the equilibrium level of income and spending.Thus, as we can see from the diagram, the aggregate demand curve shifts rightward in case of a monetary expansion.
Read more about this topic: AD-AS Model
Famous quotes containing the words effect of, effect, monetary, expansion and/or curve:
“The effect of studying masterpieces is to make me admire and do otherwise.”
—Gerard Manley Hopkins (1844–1889)
“Thinking is seeing.... Every human science is based on deduction, which is a slow process of seeing by which we work up from the effect to the cause; or, in a wider sense, all poetry like every work of art proceeds from a swift vision of things.”
—Honoré De Balzac (1799–1850)
“In our time, the curse is monetary illiteracy, just as inability to read plain print was the curse of earlier centuries.”
—Ezra Pound (1885–1972)
“The fundamental steps of expansion that will open a person, over time, to the full flowering of his or her individuality are the same for both genders. But men and women are rarely in the same place struggling with the same questions at the same age.”
—Gail Sheehy (20th century)
“In philosophical inquiry, the human spirit, imitating the movement of the stars, must follow a curve which brings it back to its point of departure. To conclude is to close a circle.”
—Charles Baudelaire (1821–1867)