Suppose policy makers implement an unexpected monetary expansion. Which of the following will occur as a result?
A) A decrease in stock prices.
B) An ambiguous effect on stock prices.
C) An increase in stock prices.
D) Stock prices increase only if goods prices increase.
E) No change in stock prices.

Question

Quizplus · Accepted Answer

An unexpected monetary expansion typically leads to an increase in the money supply and a decrease in interest rates, which makes stocks relatively more attractive to investors than bonds or savings accounts. This often leads to an increase in stock prices.

Suppose Policy Makers Implement an Unexpected Monetary Expansion