When the economy is initially at full employment:
A)expansionary monetary policy will tend to increase the price level in the short run and the long run.
B)expansionary monetary policy will tend to increase the price level in the short run but not the long run.
C)expansionary monetary policy will tend to increase the price level in the long run but not the short runq
D)expansionary monetary policy will not tend to increase the price level in the short run or the long run.

Question

When the economy is initially at full employment:
A)​expansionary monetary policy will tend to increase the price level in the short run and the long run.
B)​expansionary monetary policy will tend to increase the price level in the short run but not the long run.
C)​expansionary monetary policy will tend to increase the price level in the long run but not the short runq
D)​expansionary monetary policy will not tend to increase the price level in the short run or the long run.

Quizplus · Accepted Answer

Expansionary monetary policy, when the economy is at full employment, will increase the money supply, leading to higher demand. This can cause prices to rise in the short run due to increased spending. In the long run, as the economy adjusts, the price level may continue to rise as the increased money supply persists, influencing expectations and costs.

When the Economy Is Initially at Full Employment