Figure15-10Expansionary Monetary Policy in the AS/AD Model Suppose the economy finds itself in a recessionary gap, point E1 as shown here. When the BOC lowers the target for the overnight rate, this brings about an increase in the money supply, which in turn tends to cause an increase in consumption, investment, and net exports. This increase in the money supply shifts the aggregate demand curve toward the right as shown. This helps to close the negative output gap by moving the economy toward the long-