Question

can expansionary monetary policy stimulate a higher growth rate of real output in the long run?yes, people never fully adjust their inflationary expectations to actual inflation, so that sustained expansionary policies will increase inflation and increase output and employment.no, people adjust their inflationary expectations to actual inflation, so that sustained expansionary policies will lead to inflation without permanently increasing output and employment.

Answer 1

Expansionary monetary policy can stimulate higher growth rate of real output in the short run, but not in the long run.

Step-by-step explanation:

Expansionary monetary policy can stimulate a higher growth rate of real output in the long run. In the short run, it can help the economy return to its potential GDP by reducing interest rates and stimulating investment and consumption spending. This causes the aggregate demand curve to shift to the right, resulting in increased output and employment. However, in the long run, people adjust their inflationary expectations to actual inflation, so sustained expansionary policies can lead to inflation without permanently increasing output and employment.