An expansionary monetary policy is less effective in influencing aggregate demand compared to a restrictive monetary policy.

Question

Quizplus · Accepted Answer

An expansionary monetary policy increases the money supply, which can lead to lower interest rates and increased borrowing and spending. However, if the economy is already at full employment, an expansionary monetary policy may not be effective in increasing aggregate demand because there are no additional resources to put to work. A restrictive monetary policy, on the other hand, decreases the money supply, which can lead to higher interest rates and decreased borrowing and spending. This can be more effective in reducing aggregate demand because it can reduce the amount of money available to spend.

An Expansionary Monetary Policy Is Less Effective in Influencing Aggregate