Question

In the as/ad model, an expansionary monetary policy has the greatest effect on the price level when it

a. increases both nominal and real income
b. increases real income but not nominal income
c. increases nominal income but not real income
d. doesn't increase real or nominal income

Answer 1

The answer that would best complete the given statement above would be option B. In the as/ad model, an expansionary monetary policy has the greatest effect on the price level when it increases real income but not nominal income. Hope this answers your question.