The amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

Question

Quizplus · Accepted Answer

The slope of the aggregate supply curve determines how responsive the economy is to changes in aggregate demand. If the supply curve is relatively flat or elastic, expansionary monetary policy may lead to a relatively large increase in aggregate output and employment with only a moderate increase in prices. However, if the supply curve is relatively steep or inelastic, expansionary monetary policy may lead to a relatively small increase in output and employment and a relatively large increase in prices. Therefore, the amount of inflation caused by expansionary monetary policy depends on the slope of the aggregate supply curve.

The Amount of Inflation Caused by Expansionary Monetary Policy Depends