When expansionary monetary policy pushes real interest rates to an artificial low, the Austrian view of the business cycle predicts this will lead to
A)an increase in aggregate demand and a lengthy expansion in real output.
B)a recession, followed by a strong and lengthy expansion in real output.
C)malinvestment during an economic boom, followed by a recession.
D)malinvestment during a temporary recession, followed by a strong and lengthy economic boom.

Question

Quizplus · Accepted Answer

The Austrian view suggests that artificially low interest rates lead to malinvestment during an economic boom, which eventually results in a recession when the unsustainable investments are corrected.

When Expansionary Monetary Policy Pushes Real Interest Rates to an Artificial