In a closed economy, an expansionary monetary policy:
A) leads to an increase in both real GDP and the price level.
B) leads to a decrease in both real GDP and the price level.
C) leads to an increase in real GDP and a decrease in the price level.
D) leads to a decrease in real GDP and an increase in the price level.
E) leads to a decrease in real GDP and no change in the price level.

Question

Quizplus · Accepted Answer

Expansionary monetary policy, such as lowering interest rates or increasing the money supply, typically leads to an increase in spending and investment. This boosts economic activity, leading to higher real GDP. It also tends to increase the price level due to higher demand.

In a Closed Economy, an Expansionary Monetary Policy