Suppose the central bank pursues expansionary monetary policy. Such an action will cause:

Question

Quizplus · Accepted Answer

The natural real interest rate is determined by long-term factors such as productivity and demographics, not by short-term monetary policy actions. Expansionary monetary policy primarily affects short-term nominal interest rates and, through them, the economy, but it does not directly change the natural real interest rate.

Suppose the Central Bank Pursues Expansionary Monetary Policy