Final answer:
Expansionary monetary policy, such as lowering interest rates, leads to a rightward shift of the aggregate demand curve. This shift increases GDP and employment but can cause inflation if continued beyond potential output.
Step-by-step explanation:
Expansionary monetary policy is a tool used by central banks to stimulate the economy during a recession. When the policy is implemented, it typically lowers interest rates, which encourages borrowing and investment. As a result of these policies, the aggregate demand (AD) curve shifts. Expansionary monetary policy makes the aggregate demand curve shift to the right, which can lead to an increase in GDP and employment as well as a decrease in unemployment. However, if this policy is continued after reaching potential output, it can result in heightened inflation.
The aspects affected by such policies include lower interest rates leading to increased investment, higher bond prices, and a lower exchange rate that encourages net exports. All these factors contribute to the rightward shift of the AD curve, enhancing economic activity and reducing the recessionary gap.