In the short run, an expansionary monetary policy by the Fed would:
A)reduce unemployment at the cost of higher inflation.
B)reduce inflation at the cost of a rise in the natural rate of unemployment.
C)reduce inflation and leave the natural unemployment rate unchanged.
D)reduce both inflation and unemployment.
E)increase both inflation and unemployment.

Question

Quizplus · Accepted Answer

An expansionary monetary policy involves the Fed increasing the money supply and lowering interest rates to stimulate economic growth. This can lead to lower unemployment in the short run as businesses have access to cheaper credit, resulting in increased investment and hiring. However, the increase in money supply can also lead to higher inflation as consumers have more money to spend, which can cause businesses to raise prices. Therefore, in the short run, an expansionary monetary policy would reduce unemployment at the cost of higher inflation.

In the Short Run, an Expansionary Monetary Policy by the Fed