If the Federal Reserve uses expansionary monetary policy, then: there is a negat

Question

If the Federal Reserve uses expansionary monetary policy, then:

there is a negative short-run effect on real GDP but prices remain unchanged in the long run.

there is a positive short-run effect on the price level but the aggregate price level remains unchanged in the long run.

there is a positive long-run effect on real GDP but GDP remains unchanged at its potential level in the short run.

there is a positive short-run effect on real GDP but GDP remains equal to potential GDP in the long run

there is a negative short-run effect on real GDP but prices remain unchanged in the long run.

there is a positive short-run effect on the price level but the aggregate price level remains unchanged in the long run.

there is a positive long-run effect on real GDP but GDP remains unchanged at its potential level in the short run.

there is a positive short-run effect on real GDP but GDP remains equal to potential GDP in the long run

Explanation / Answer

The aggregate supply curve is vertical in the long run and is upward sloping in the short run. Expansionary monetary policy will shift the AD curve to the right. Thus, in short run this expansion will lead to increase in real GDP but in long run, GDP becomes equal to potential GDP.

Thus, option D

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