-Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate demand curve to shift to AD2. In the long run
A) the unemployment rate will be the same rate as before the expansionary monetary policy.
B) the unemployment rate will be larger than the rate before the expansionary monetary policy.
C) the unemployment rate will be smaller than the rate before the expansionary monetary policy.
D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Question

-Refer to the above figure. Unexpected expansionary monetary policy has caused the aggregate demand curve to shift to AD2. In the long run
A) the unemployment rate will be the same rate as before the expansionary monetary policy. 
B) the unemployment rate will be larger than the rate before the expansionary monetary policy. 
C) the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Quizplus · Accepted Answer

In the long run, the economy tends to return to the natural rate of unemployment, regardless of short-term fluctuations in aggregate demand. Expansionary monetary policy can temporarily lower unemployment, but in the long run, the unemployment rate will adjust back to its natural rate, which is the same as before the policy was implemented.

-Refer to the Above Figure