If the Fed unexpectedly shifts to a more expansionary monetary policy, which of the following will most likely occur in the short run?
A) a decrease in the real interest rate
B) an increase in unemployment
C) a decrease in real GDP
D) an increase in the nominal interest rate

Question

Quizplus · Accepted Answer

If the Fed unexpectedly shifts to a more expansionary monetary policy, it will lower interest rates, causing more investment and consumer spending. This increased demand will ultimately lead to an increase in employment and an increase in output in the short run. Therefore, there will be a decrease in the real interest rate.

If the Fed Unexpectedly Shifts to a More Expansionary Monetary