Starting from long-run equilibrium,the long-run impact(s)of an "easing" of monetary policy by the Bank of Canada (a downward shift in the monetary policy rule),compared to the original equilibrium,would be
A) higher inflation.
B) higher output.
C) higher inflation and higher output.
D) lower inflation and lower output.
E) no change in inflation or output.

Question

Quizplus · Accepted Answer

In the long run, an easing of monetary policy leads to higher inflation as the economy adjusts back to its potential output level, but output returns to its original level due to the economy's self-correcting mechanism.

Starting from Long-Run Equilibrium,the Long-Run Impact(s)of an "Easing" of Monetary