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 involves increasing the money supply, which can lead to lower interest rates and increased borrowing and spending. However, if the economy is already at or near full employment, an expansionary monetary policy may not be effective in further stimulating aggregate demand. On the other hand, a restrictive monetary policy involves decreasing the money supply, which can lead to higher interest rates and decreased borrowing and spending. This can be more effective in reducing aggregate demand, especially if the economy is experiencing high inflation.

An Expansionary Monetary Policy Is Less Effective in Inﬂuencing Aggregate