If the long-run equilibrium of an economy is disrupted by an unexpected shift to a more expansionary monetary policy, the policy shift will
A) reduce aggregate demand and real output in the short run.
B) lead to a higher rate of unemployment in the short run.
C) stimulate real output in the short run, but in the long run, its primary impact will be on the general level of prices.
D) lead to an increase in the general level of prices in the short run, but in the long run, its primary impact will be an expansion in real output.

Question

Quizplus · Accepted Answer

An unexpected shift to a more expansionary monetary policy typically stimulates real output in the short run by increasing aggregate demand. However, in the long run, the primary impact is often on the general level of prices, leading to inflation, as the economy returns to its potential output level.

If the Long-Run Equilibrium of an Economy Is Disrupted by an Unexpected