An anticipated increase in the money supply increases short-run real output by the largest amount in

Question

Quizplus · Accepted Answer

In the traditional model, an anticipated increase in the money supply leads to a temporary decrease in interest rates and an increase in investment, consumption, and output in the short run. This is known as the liquidity effect. The other models (new Keynesian and new classical) have frictions or imperfections that dampen the impact of monetary policy on real output in the short run.

An Anticipated Increase in the Money Supply Increases Short-Run Real