In the short run, which of the following is the most likely effect of an unanticipated move to expansionary monetary policy?
A) an increase in real output
B) a decrease in real output
C) an improvement in technology, which will stimulate growth in the long run
D) an increase in prices proportional to the increase in the money supply

Question

Quizplus · Accepted Answer

An unanticipated move to expansionary monetary policy involves the central bank increasing the money supply and lowering interest rates to stimulate economic activity. This makes it easier for households and firms to borrow and spend money, which boosts aggregate demand and increases real output in the short run. Therefore, choice A is the most likely effect of such a policy shift. Choice B is incorrect because it implies a contractionary monetary policy, which reduces output by making it more expensive to borrow and spend money. Choice C is incorrect because it refers to long-run factors that are influenced more by investment, innovation, and productivity growth than by monetary policy. Choice D is incorrect because it assumes that prices and the money supply move in lockstep, which is not always the case due to various factors such as velocity of money, demand for money, and inflation expectations.

In the Short Run, Which of the Following Is the Most