Despite an expansionary monetary policy, an economy experiences a recession. Everything else held constant, the recession could occur in spite of the rightward shift of the MP curve if ________.
A) consumer confidence decreases sharply
B) there is an investment boom
C) the money supply increases
D) taxes are cut

Question

Quizplus · Accepted Answer

While an expansionary monetary policy can shift the MP curve to the right, if there is a sharp decrease in consumer confidence, it can cause a decrease in aggregate demand and lead to a recession. This is because consumers may choose to save more and spend less, which can slow down economic growth. An investment boom, an increase in the money supply, or cuts in taxes would generally stimulate the economy and lead to an increase in aggregate demand, making them less likely causes of a recession.

Despite an Expansionary Monetary Policy, an Economy Experiences a Recession