According to the new Keynesian model, expansionary monetary policy can be effective if it is
A) anticipated.
B) unanticipated.
C) both of the above.
D) neither of the above.

Question

Quizplus · Accepted Answer

Expansionary monetary policy can be effective if it is anticipated because it can lead to an increase in aggregate demand. This is because when people expect inflation to increase in the future, they will be more likely to spend money now, rather than save it. This can lead to an increase in economic growth. Expansionary monetary policy can also be effective if it is unanticipated because it can lead to a decrease in interest rates. This is because when people do not expect inflation to increase in the future, they will be more likely to save money, rather than spend it. This can lead to a decrease in economic growth.

According to the New Keynesian Model, Expansionary Monetary Policy Can