An expansionary monetary policy is likely to increase real output more than just temporarily:
A)when actual output currently is beyond the economy's long-run capacity.
B)when the economy currently is at full employment.
C)when the economy currently operates at less than capacity.
D)at virtually any output level.

Question

An expansionary monetary policy is likely to increase real output more than just temporarily:​
A)​when actual output currently is beyond the economy's long-run capacity.
B)​when the economy currently is at full employment.
C)​when the economy currently operates at less than capacity.
D)​at virtually any output level.

Quizplus · Accepted Answer

An expansionary monetary policy is likely to increase real output more than just temporarily when the economy currently operates at less than capacity. This is because when the economy is below its potential output, there is room for growth without encountering inflationary pressures. By injecting more money into the economy through an expansionary monetary policy, businesses are able to access more credit, which enables them to increase production and hire more workers. This leads to increased spending, which further stimulates economic growth.

An Expansionary Monetary Policy Is Likely to Increase Real Output