Question

expansionary monetary policy ________ real interest rates and ________ output in the short run, thereby ________...

expansionary monetary policy ________ real interest rates and ________ output in the short run, thereby ________ stock prices.

a. lowers, rise, lowering

b. raises, lowers, loweing

c. lowers, raise, raising

d. raise, raise, raising

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Answer #1

Answer : The answer is option c.

Expansionary monetary policy increase the money supply in the economy. Higher money supply decrease the real interest rate. With lower interest rate people spend more and save less. Lower interest rate decrease the borrowing cost hence investment increase. As a result, the aggregate demand increase which shift the AD (Aggregate Demand) curve to rightward. For this reason output increase in short run. And due to lower interest rate people invest more on stock which increase the stock demand. As a result, the stock price increase. Hence except option c other options are not correct. Therefore, option c is the correct answer.

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