Assume the Fed Initiates an Expansionary Monetary Policy That Is

question 173

Multiple Choice

Assume the Fed initiates an expansionary monetary policy that is correctly anticipated by economic agents in the economy. According to the rational expectation hypothesis, the result is

• A) an increased price level in the short run, but no effect on price level in the long run.
• B) decreased real Gross Domestic Product (GDP) in the short run, but increased real Gross Domestic Product (GDP) in the long run.
• C) increased real Gross Domestic Product (GDP) and increased employment in the long run.
• D) an increased price level, but no change in real Gross Domestic Product (GDP) in the long run.

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Definitions:

Tax Cut

A reduction in the amount of taxes imposed by a government on individuals or businesses.

Gross Domestic Product

A measure of the economic productivity of a country, quantifying the total value of all goods and services produced over a specific time period.

Planned Investment

Future directed expenditure by firms on physical assets like machinery and buildings, anticipated to enhance productivity.

Interest Rates

The cost of borrowing money or the return on savings, typically expressed as a percentage of the principal sum annually.