Use the following to answer questions:
-Consider an economy that is facing a recessionary gap.The Bank of Canada decides to use expansionary monetary policy to close that gap.As a result of this policy,in the short run the money supply will _____,the interest rate will _____,investment and consumption spending will _____,and real GDP will _____.

Question

Use the following to answer questions: 
-Consider an economy that is facing a recessionary gap.The Bank of Canada decides to use expansionary monetary policy to close that gap.As a result of this policy,in the short run the money supply will _____,the interest rate will _____,investment and consumption spending will _____,and real GDP will _____.

Quizplus · Accepted Answer

Expansionary monetary policy involves increasing the money supply, which would increase investment and consumption spending. As a result, real GDP would increase. However, increasing the money supply would decrease the interest rate, which could lead to inflation in the long run.

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