Praxis II Social Sciences Content Knowledge Exam Prep

Answer - B - Expansionary monetary policy is neutral on interest rates in the medium run.

Key Takeaway: Expansionary monetary policies are those policies implemented by governments to increase the size of the money supply in a country. While such policies decrease interest rates in the short run (thereby increasing investment and output), they are neutral in the medium run as they are offset by a contraction in the real value of money.