Question

Which of the following describes the expected outcome of expansionary monetary policy in the short run?

Choose one:
A. higher employment, higher output, and a higher price level
B. lower employment, higher output, and a higher price level
C. higher employment, higher output, and a lower price level
D. lower employment, lower output, and a lower price level

Answer 1

The correct answer is letter "A": higher employment, higher output, and a higher price level.

Step-by-step explanation:

Expansionary policy is a macroeconomic concept that focuses on expanding the economy to counteract cyclical downturns. Expansionary policies can be used through monetary policy to expand the money supply or to increase government expending and tax cuts to stimulate the economy. Under this scenario, interest rates are lower and aggregate demand increases. In that case, employment, output, and price level will be higher. Though, the latter is dangerous since it could lead to high inflation.