Question

Expansionary monetary policy to prevent real GDP from falling below potential real GDP wouldcause the inflation rate to be ________ and real GDP to be ________.

A) higher; lower.
B) higher; higher.
C) lower; lower.
D) lower; higher

Answer 1

B) higher; higher.

Step-by-step explanation:

Under the expansionary policy the central bank targets to grow the economy. For this, it through its policies tend to increase the demand of products, and with that increase the supply of money.

As with increased demand the inflation would increase, also, that the supply of money is increased, it is obvious that the inflation rate will increase because of increasing demand, and ultimately the supply of money might fall.

But in all this, the real GDP will increase, as initially people will purchase more.