Monetary policy has short- run effects on which of the following?
A) Only the price level.
B) The level of output but not its composition.
C) Only the nominal interest rate, not the real interest rate.
D) Both the level and composition of output.
E) Inflation but not the level of output.

Question

Quizplus · Accepted Answer

Monetary policy can affect both the level and composition of output in the short run, by influencing the level of aggregate demand and thereby affecting the mix of output produced. For example, a decrease in interest rates can stimulate investment and consumption spending, leading to an increase in real GDP as well as a shift in the composition of output toward investment and consumption goods.

Monetary Policy Has Short- Run Effects on Which of the Following