Question

Expansionary monetary policy is used to decrease unemployment and increase real GDP. This policy works in the short run, but is it effective in the long run? Place the following events in order from first to last.

The Fed invokes expansionary monetary policy by increasing money supply.The AD curve shifts rightward.Resource prices adjust.SRAS shifts to the left.The economy moves to a new long-run equilibrium.

Answer 1

The given statements are already organised from first to last

Initially the federal reserve will invoke the expansionary monetary policy and this is done by increasing the money supply

the market interest rate declines and thus increases the investment which means aggregate demand increases. Therefore the AD curve will shift to the right

in the short run output and price both are increased but during the transition from short run to long run resource prices will adjust

after the adjustment has taken place the short run aggregate supply curve shifts left when the the production is decreased

When all the adjustment has taken place the new long run equilibrium has a higher price level but the same level of GDP.