An unexpected shift to a more expansionary monetary policy will generally
A) stimulate aggregate demand and real output as soon as the policy is instituted.
B) exert its primary impact on aggregate demand and real output 6 to 15 months in the future.
C) cause inflation in the short run, but expand real output in the long run.
D) increase real interest rates in the short run.

Question

Quizplus · Accepted Answer

An unexpected shift to a more expansionary monetary policy, such as a decrease in interest rates, will take time to filter through the economy and impact aggregate demand and real output. This is because it takes time for individuals and businesses to adjust their spending and investment decisions based on the new interest rate environment. The lag time is typically 6 to 15 months, meaning that the primary impact on the economy will be felt several months after the policy change is implemented.

An Unexpected Shift to a More Expansionary Monetary Policy Will