Correctly anticipating the effects of expansionary monetary policy will: a. Decrease real output. b. Leave the price level unchanged. c. Increase real output. d. Increase the nominal interest rate.
But won’t expansionary monetary policy mean lower interest rates since money is more freely available?
I’m not sure what the answer is, but it’s definitely not D.
I think B–> since it is anticipated… it’s effect would be to leave things unchanged? Or am I totally off base…
the effect of expansionary monetary policy is as follows unanticipated- more money on the market- increased demand -increase real output anticipated- you know that increase demand will increase prices- therefore inflation - in order to protect from inflation banks will increase nominal interest rates was d correct?
Choice “d” is correct. The nominal interest rate will rise in response to price level increases. Choice “a” is incorrect. An unanticipated expansionary monetary policy might be expected to temporarily increase real output. An anticipated expansionary monetary policy would leave real output unchanged. Choice “b” is incorrect. The inflation rate will rise when people realize that monetary policy has become expansionary. Choice “c” is incorrect. An unanticipated expansionary monetary policy might be expected to temporarily increase real output. An anticipated expansionary monetary policy would leave real output unchanged.
SadCFAWannabe Wrote: ------------------------------------------------------- > Correctly anticipating the effects of expansionary > monetary policy will: > > a. Decrease real output. > > b. Leave the price level unchanged. > > c. Increase real output. > > d. Increase the nominal interest rate. B. If it is anticipated it has no effect
It is definitely D. The reason being aggregate demand will increase anticipating the expansionary policy. Since it is anticipated workers will re negotiate their pay packages to suit the current inflation. As a result demand increase and supply increases by the same amt. Result output -> no change Prioce level increases increase in price level increases the nominal interest.
CFA_Halifax if the policy is anticipated, output is unchanged but price will. real interest rate in unchanged, but nominal interest rate will because inflation increases.
good thing I’m not writing this next week, nor ever again!