If the Federal Reserve uses expansionary monetary policy there is a _____ short-run effect on _____, but_____.
A) negative short-run; real GDP; prices remain unchanged in the long run.
B) positive short-run; real GDP; GDP remains equal to potential GDP in the long run.
C) positive long-run; real GDP; GDP remains unchanged at its potential level in the short run.
D) positive short-run; the price level; the aggregate price level remains unchanged in the long run.

Question

Quizplus · Accepted Answer

Expansionary monetary policy is designed to increase the money supply, which results in lower interest rates and increased borrowing and spending. This leads to an initial increase in real GDP in the short run. However, in the long run, the economy will return to its potential output level and the GDP will remain unchanged.

If the Federal Reserve Uses Expansionary Monetary Policy There Is