Suppose the economy experiences a recessionary gap.Expansionary monetary policy will _______ interest rates and _______ the bond prices.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves the central bank increasing the money supply in the economy, which leads to a decrease in interest rates. As interest rates decrease, the prices of bonds increase. Therefore, expansionary monetary policy will decrease interest rates and increase bond prices, as stated in option C.

Suppose the Economy Experiences a Recessionary Gap