To the extent that people eventually adjust to demand stimulus policies, persistent expansionary macropolicy will lead to
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A. B. C. D.C
Correctly anticipated inflation will result in persistent, though consistent, inflation with no effect on unemployment since there will be no effect on the real wage.
Persistent expansionary macropolicy refers to a continuous implementation of policies aimed at stimulating demand in an economy. When analyzing the effects of such policies, we can evaluate the potential outcomes based on various economic factors. Let's examine each answer choice and its implications:
A. Lower money interest rates: Expansionary macropolicies typically involve measures such as reducing interest rates to encourage borrowing and investment. Lower interest rates can stimulate economic activity by making borrowing cheaper, encouraging businesses and consumers to spend and invest more. As a result, lower money interest rates can be an expected outcome of persistent expansionary macropolicy.
B. A reduction in long-run unemployment: Expansionary macropolicies can lead to increased economic activity, which may help reduce unemployment rates in the short run. By boosting demand, businesses may need to hire more workers to meet increased production or service demands. However, the reduction in unemployment is generally considered a short-term effect. In the long run, the unemployment rate is influenced by factors such as labor market dynamics, technological advancements, and structural changes in the economy.
C. Inflation with no permanent reduction in unemployment: This answer choice suggests that persistent expansionary macropolicy will lead to inflation without permanently reducing unemployment. Expansionary policies often involve injecting more money into the economy, which can increase demand for goods and services. If the supply of goods and services does not keep pace with the increased demand, prices can rise, leading to inflation. In this scenario, the expansionary policies may not address the underlying causes of unemployment, and any temporary reduction in unemployment may not be sustained.
D. More rapid economic growth but no change in prices: This answer choice implies that persistent expansionary macropolicy will result in accelerated economic growth without affecting prices. Expansionary policies are intended to boost economic activity, and if successful, they can lead to higher production, increased consumption, and overall economic growth. However, if the increased demand is met by increased supply, there may not be a significant impact on prices. This outcome assumes that the expansionary policies are well-coordinated, effectively managing both demand and supply factors.
Considering the options presented, it is important to note that macroeconomic outcomes are influenced by a multitude of factors, and their effects can vary depending on the specific context and circumstances. While expansionary macropolicies can have short-term positive effects on the economy, their long-term implications and potential trade-offs should be carefully considered.