Question: 1. Explain, using appropriate terminologies and a graph, how expansionary monetary policy can affect the economy. (Need to make a graph like below, but with

1. Explain, using appropriate terminologies and a graph, how expansionary monetary policy can affect the economy. (Need to make a graph like below, but with own scenario and give explanation).

Expansionary Monetary Policy LAS 125 AIM: Increase AD, to AD, and move economy to point A 108 Assume (GDP deflator, 2003/04 = 100) 105 Economy at IAD, Point B 95 Price level SAS AD 0 L Full Employment 850 900 950 1,000 Real GDP (billions of 2003/04 dollars) 21

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