Expansionary monetary policy decreases interest rates in the short run. What is the effect of expansionary monetary policy in the medium run?
  1. Positive
  2. Neutral
  3. Negative
  4. Depends on GDP
Explanation
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.
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