Question

In the short run, an expansionary monetary policy would most likely result in which of the following changes in the price level and real gross domestic product?

A) Price level: decrease ; real GDP: increase
B) Price level: no change ; real GDP: decrease
C) Price level: increase ; real GDP : no change
D) Price level: increase ; real GDP: decrease
E) Price level: increase ; real GDP: increase

Answer 1

In the short run, an expansionary monetary policy would most likely result in an increase in the price level and real GDP.

Step-by-step explanation:

In the short run, an expansionary monetary policy is designed to stimulate economic growth by increasing the money supply, reducing interest rates, and encouraging borrowing and spending.

This increase in spending leads to an increase in aggregate demand, which in turn leads to an increase in real gross domestic product (GDP).

However, this expansionary policy can also lead to an increase in the price level due to the increased demand.

Therefore, the most likely result of an expansionary monetary policy in the short run is:
A) Price level: increase ; real GDP: increase