suppose that the central bank of a given country is not independent, and the elected government has complete control over monetary policy. in the accompanying diagram, assume that the economy starts off at the macroeconomic equilibrium. a. an election is coming up and the majority political party wants to increase its chances of retaining majority control of congress. policy makers decide the best way to ensure reelection is to force the central bank to enact expansionary monetary policy. in the accompanying graph, shift the curve(s) to depict the impact this will have on the macroeconomy.

A nation is able to handle nearly all of its operations pertaining to the expansion of its infrastructure, development, or financial sector with the assistance of these two policies.

A nation's central bank is in charge of its monetary policy. The money market is influenced by monetary policy.

The central bank of a nation determines a nation's money supply, interest rate, and credit availability through monetary policy.

Most of the time, monetary policy is used as a tool for the short and medium term.

Simply put, monetary policy contributes to the control of credit in the market in order to maintain the value of the currency, price stability, economic growth, and exchange stability. This is accomplished by influencing the interest rate, which either increases or decreases the lending and borrowing process.

The country's expansionary monetary policy increases the money supply and lowers market interest rates. It reduces interest rates and increases the money supply.

As a result, the cost of borrowing will go down and investment will go up. As income goes up, so will demand for money. This will cause the aggregate demand curve (AD) to move to the right and cause an inflationary gap.

An economy experiences rising prices and a low unemployment rate during an inflationary gap because it is operating above its potential GDP. The AD curve will shift from AD to AD1 under expansionary monetary policy, as shown in the diagram.

This outcomes in Genuine GDP(Y1) > expected GDP(Y*) in the given graph it tends to be seen that when the genuine Gross domestic product is Y1, the value level(P1) is higher than the harmony value level(P*) and balance yield level that of Likely Gross domestic product (Y*); that is there is inflationary hole (Y* to Y1) with excessive cost and low pace of joblessness.

As a result, the illustration above makes it abundantly clear that expansionary monetary policy will shift AD to the right and cause an inflationary gap by raising real output and price levels.

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