Which monetary policy would be destabilizing? I. an expansionary policy during an expansion
II) an expansionary policy during a recession
III) a contractionary policy during an expansion
A) I only
B) II only
C) III only
D) I, II, and III

Question

Quizplus · Accepted Answer

An expansionary policy during an expansion can be destabilizing because it might lead to overheating of the economy, causing inflation to rise beyond the target levels. Expansionary policy during a recession and contractionary policy during an expansion are typically stabilizing, as they aim to stimulate a sluggish economy and cool down an overheating economy, respectively.

Which Monetary Policy Would Be Destabilizing? I