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Which of the following statements is/are true of monetary policy? Choose one or more: A. Monetary...

Which of the following statements is/are true of monetary policy? Choose one or more: A. Monetary policy works better when it is unexpected. B. Monetary policy can be effective in the long run, but not in the short run. C. Expansionary monetary policy works primarily by increasing aggregate supply.

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Answer #1

A. Monetary policy works better when its unexpected.

( If Monetary policy is expected , then financial markets will adjust to the changes easily. New clasical economists have argued that expectations are supposed to adapt to changes in the money supply even in the short run. Therefore monetary policy will have more impact on real variables if changes were totally random.

Other options are incorrect.

* Despite the neutrality of Money in the medium run, monetary policy can be effective in short run.

* Expansionary monetary policy works through interest rate which determines investment and investment is an important component of aggregate demand.Therfore , expansionary monetary policy works primarily by shifting the demand curve upward.)

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