Result of significant declines in aggregate demand

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Suppose the Macroeconomy is in a state of severe recession as a result of significant declines in aggregate demand. When you were asked to advise the Chairperson of the Federal Reserve about possible policy choices to deal with the this problem, you decided to recommend the use of monetary policy. To convince the Chairperson and the members of the FOMC that monetary policy works, will you recommend either an expansionary or a contractionary monetary policy? Explain your analysis and its results using the AD and AS supply diagrams to illustrate your answers and conclusions regarding how the recessionary gap is eliminated. State what you believe will happen to the key Macroeconomic Variables. [Note: You must use the transmission mechanism process and graphs to diagrammatically illustrate your answers. No credit will be earned without the proper use of these diagrams].

Reference no: EM131943573

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