4) Using the adaptive expectations version of the Keynesian AS/AD model, the short run effect of amonetary expansion is.A) higher output and prices; higher prices but no change in outputwhile the long-run effect isB) higher output and lower prices; lower prices but no changein outputC) higher unemployment and inflation; no change in output or prices.D) higher inflation only: higher output only

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Answered: monetary expansion is. while the…

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monetary expansion is. while the long-run effect is A) higher output and prices; higher prices but no change in output

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter16: Macro Policy Debate: Active Or Passive?

Section: Chapter Questions

Problem 2.3P

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Concept explainers

Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.

Question

4) Using the adaptive expectations version of the Keynesian AS/AD model, the short run effect of a
monetary expansion is.
A) higher output and prices; higher prices but no change in output
while the long-run effect is
B) higher output and lower prices; lower prices but no changein output
C) higher unemployment and inflation; no change in output or prices.
D) higher inflation only: higher output only

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