According to the modern view, the impact of expansionary monetary policy will
A) be the same in the long run as in the short run.
B) be the same regardless of whether the effects of the policy are anticipated or unanticipated.
C) initially be an increase in real output if the policy is unanticipated, but in the long run, the primary result will be a higher price level (inflation).
D) initially be an increase in prices if the policy is unanticipated, but in the long run, the primary result will be larger real output.

Question

Quizplus · Accepted Answer

According to the modern view, expansionary monetary policy may initially increase real output if the policy is unanticipated, but in the long run, the primary result will be a higher price level (inflation). This is due to the fact that in the short run, expansionary monetary policy can increase aggregate demand, leading to an increase in output and employment. However, over time, firms may increase their prices and wages in response to the increased demand, leading to higher inflation without a permanent increase in output. This effect is particularly pronounced if the policy is anticipated, as firms and individuals may adjust their behavior in anticipation of the policy.

According to the Modern View, the Impact of Expansionary Monetary