According to the Monetarist view, the impact of expansionary monetary policy will be:

A. the same regardless of whether the effects of the policy are anticipated or unanticipated.
B. a decrease in short-run prices and an increase in long-run prices.
C. the same in the long run as in the short run.
D. a higher price level (inflation).

Question

09-08-2024
Business

Answered

According to the Monetarist view, the impact of expansionary monetary policy will be:

A. the same regardless of whether the effects of the policy are anticipated or unanticipated.
B. a decrease in short-run prices and an increase in long-run prices.
C. the same in the long run as in the short run.
D. a higher price level (inflation).

Answer :

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GinnyAnswer GinnyAnswer · Answer 1 · 2024-08-09T19:26:26-04:00

Final answer:

Expansionary monetary policy effects in the Monetarist view are influenced by whether effects are anticipated or unanticipated, impacting the price level and output differently.

Explanation:

Expansionary monetary policy involves increasing the money supply, which leads to lower interest rates, higher borrowing, and a shift in aggregate demand to the right.

In the Monetarist view, the impact of expansionary monetary policy differs depending on whether the effects are anticipated or unanticipated. With rational expectations, if people anticipate price rises, nominal wages adjust, leading to no change in real GDP but an increase in the price level.

In the long run, expansionary monetary policy under rational expectations may result in an inflationary increase in the price level but would not affect output or unemployment rates significantly.

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