Extended Essays 2021

3.0 Discussion

3.1 Theoretical of the impact of monetary policy

Diagram 1 shows the changes in real GDP before the U.S. Federal expansion policy in 2020.

Before the pandemic, I assume that the aggregated demand is AD1 at the price level of PL1.

Then, with the fall in GDP, AD1 shifts left to AD2, bringing about the price level to PL2.

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