The short run sequence of events following an unanticipated shift to a more expansionary monetary policy would be
A) lower interest rates, decrease in aggregate demand, and a reduction in output.
B) lower interest rates, increase in aggregate demand, and an expansion in output.
C) higher interest rates, decrease in aggregate demand, and a reduction in output.
D) higher interest rates, increase in aggregate demand, and an expansion in output.

Question

Quizplus · Accepted Answer

An unanticipated shift to a more expansionary monetary policy would lead to a decrease in interest rates, which would lead to an increase in consumption and investment spending, and an increase in aggregate demand. This increase in aggregate demand would lead to an expansion in output.

The Short Run Sequence of Events Following an Unanticipated Shift