Unit 3.5 · Demand Management (Monetary Policy)
Expansionary and Contractionary Monetary Policy
AO3AO4Diagram required
Syllabus Requirement
Explains how monetary policy shifts the AD curve to close deflationary or inflationary gaps.
Assessment Objectives
AO3Synthesis and Evaluation
AO4Use of Appropriate Skills
Summary
This topic covers expansionary and contractionary monetary policies, which are tools used by central banks to manage the economy. Expansionary policy aims to increase the money supply to boost aggregate demand, while contractionary policy seeks to reduce the money supply to control inflation. Understanding these policies is essential for analyzing how central banks influence economic activity.