If the aggregate price level adjusts slowly over time,then an expansionary monetary policy lowers
A)only the short-term nominal interest rate.
B)only the short-term real interest rate.
C)both the short-term nominal and real interest rates.
D)the short-term nominal,the short-term real,and the long-term real interest rates.

Question

Quizplus · Accepted Answer

When the aggregate price level adjusts slowly, an expansionary monetary policy lowers the short-term nominal interest rate directly through increased money supply. This, in turn, reduces the short-term real interest rate because prices do not adjust immediately. Over time, expectations adjust, affecting long-term real interest rates as well.

If the Aggregate Price Level Adjusts Slowly Over Time,then an Expansionary