Question

With adaptive expectations, what is the inevitable consequence of an unexpected, active, expansionary monetary policy in the short and long run? Choose one: A. lower unemployment in the short run and higher inflation in the long run B. higher unemployment in the short run and higher inflation in the long run C. lower unemployment in the short run and lower inflation in the long run D. higher unemployment in the short run and lower inflation in the long run

Answer 1

A. lower unemployment in the short run and higher inflation in the long run

Step-by-step explanation:

In the expansionary policy the government expects to expand the country by increasing the resources and demand for such resources.

More exports are targeted and less imports.

In the short run the unemployment rate shall be decreased, as with expansion the government plans to increase job opportunities, but in the long run with this continuous increase in the expansion, will ultimately increase the buying capacity of people, and further the producers will be willing to sell at higher price.

This will introduce inflation in long run.