Expansionary monetary policy would be an appropriate policy response to an inflationary gap.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves increasing the money supply and lowering interest rates to stimulate economic growth. This policy would be inappropriate for an inflationary gap, as it would only exacerbate inflationary pressures. Instead, a contractionary monetary policy, which involves reducing the money supply and raising interest rates, would be a more appropriate response to an inflationary gap.

Expansionary Monetary Policy Would Be an Appropriate Policy Response to an Inflationary