When an expansionary monetary policy leads to an acceleration in the rate of inflation, it will also result in
A)lower nominal interest rates.
B)higher nominal interest rates.
C)an appreciation of the dollar in the foreign exchange market.
D)lower money wages.

Question

Quizplus · Accepted Answer

An expansionary monetary policy increases the money supply, which can lead to higher inflation. As inflation expectations rise, nominal interest rates tend to increase to compensate lenders for the decrease in purchasing power.

When an Expansionary Monetary Policy Leads to an Acceleration in the Rate