Starting from an initial equilibrium with a recessionary gap,what effect would a shift to more expansionary monetary policy tend to have?
A)Increased prices and unemployment in the long run.
B)Increased real output in both the long run and the short run.
C)Increased real output in the long run but not the short run.
D)Increased real output in the short run but not in the long run.

Question

Quizplus · Accepted Answer

Expansionary monetary policy increases real output in the short run by boosting demand, but in the long run, output returns to its natural level, and only prices increase.

Starting from an Initial Equilibrium with a Recessionary Gap,what Effect