Beginning from a position of long-run equilibrium,an expansionary monetary policy by the Bank of Canada causes

Question

Quizplus · Accepted Answer

An expansionary monetary policy means an increase in money supply and lower interest rates, which result in higher consumption and investment spending, leading to an increase in aggregate demand for goods and services. As potential output is a long-run concept, it remains fixed in the short run. Therefore, as demand exceeds potential output, there will be upward pressure on prices, indicating inflationary pressures in the economy.

Beginning from a Position of Long-Run Equilibrium,an Expansionary Monetary Policy