question archive Given that the economy can correct itself and return to potential GDP, why would the Federal Reserve pursue expansionary monetary policy following a negative aggregate demand shock? How could the Fed pursuing expansionary monetary policy be preferable to the economy correcting itself? A
Given that the economy can correct itself and return to potential GDP, why would the Federal Reserve pursue expansionary monetary policy following a negative aggregate demand shock? How could the Fed pursuing expansionary monetary policy be preferable to the economy correcting itself? A
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Given that the economy can correct itself and return to potential GDP, why would the Federal Reserve pursue expansionary monetary policy following a negative aggregate demand shock? How could the Fed pursuing expansionary monetary policy be preferable to the economy correcting itself?
A. Expansionary monetary policy might more quickly return the economy to full employment than the adjustment of the economy by itself.
B. Self-adjusting methods of economic stabilization deny politicians the chance to show that they are in control of the situation.
C. Expansionary monetary policy has fewer negative effects on unemployment than self-adjustment does.
D. Self-adjusting methods of economic stabilization are more expensive for the government than expansionary monetary policy.
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- A. Expansionary monetary policy might more quickly return the economy to full employment than the adjustment of the economy by itself.
The Federal Reserve implements expansionary monetary policy to overcome the effects of a negative aggregate demand shock. The expansionary monetary policy will increase the money supply in the market. Hence, people hold more money than earlier and consume more products and services. As a result, aggregate demand increases in the market.
Fed uses expansionary monetary as it affects the economy in the short-run. This leads to the stability of the marketplace in a lesser time than the time taken by the economy to adjust itself.
