If people expect the Fed to adopt a(n)________ for several years,the long-term expected real interest rate will remain ________.
A) contractionary monetary policy; low
B) expansionary monetary policy; low
C) contractionary fiscal policy; high
D) expansionary fiscal policy; low

Question

Quizplus · Accepted Answer

If the Fed is expected to adopt an expansionary monetary policy for several years, then it means that interest rates will remain low in the long-term, as the Fed will be trying to stimulate economic growth through low interest rates. Choice A is incorrect because a contractionary monetary policy would cause higher interest rates. Choices C and D are also incorrect because they pertain to fiscal policies rather than monetary policies.

If People Expect the Fed to Adopt A(n)________ for Several