Question

3. Monetary Policy "monetary policy can't stimulate the economy because it simply prints more money causing rising prices and inflation, not more output and jobs. We shouldn't be surprised- common sense tells us we can't print out way to prosperity". Do you agree or disagree? Please explain. Use the model. (Hint:what are your conclusions under short run and long run equilibrium?)

Answer 1

I don't agree with the statement above because monetary policy is a very essential tool of the central bank in stabilising the economy and fostering economic growth. Monetary policy simply doesn't mean printing currencies. An easy monetary policy is helpful to get the economy out of the recession while a tight monetary policy is helpful in reducing inflation. Under short run equilibrium the easy monetary policy is helpful while for the long run a tight monetary policy will be more effective.