If economic recovery has already occurred by the time the effects of expansionary monetary policy are felt, it could cause an inflation problem rather than curing a recession problem.

Question

Quizplus · Accepted Answer

Expansionary monetary policy, such as increasing the money supply and lowering interest rates, is aimed at stimulating economic activity and boosting aggregate demand. However, if the economy is already at or close to full employment and output, the additional demand generated by monetary policy can lead to inflationary pressures. This is because when there is more money chasing the same amount of goods and services, prices tend to rise. Therefore, if the economy has already recovered from a recession by the time the effects of expansionary monetary policy are felt, it could exacerbate inflation rather than solving a recession problem.

If Economic Recovery Has Already Occurred by the Time the Effects