Learning Path
Question & Answer
Choose the Best Answer
Unemployment will decrease as businesses invest more.
Unemployment will increase due to inflation.
Unemployment will remain unchanged since rates don't affect labor.
Unemployment will only decrease if consumer confidence is high.
Understanding the Answer
Let's break down why this is correct
Lowering rates makes loans cheaper, so companies borrow more and spend on new projects. Other options are incorrect because It is a common mistake to think higher inflation automatically raises joblessness; Interest rates do affect the labor market because they change how much firms can spend.
Key Concepts
Expansionary Monetary Policy Effects
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Deep Dive: Expansionary Monetary Policy Effects
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Definition
Expansionary monetary policy involves the central bank reducing interest rates to stimulate aggregate demand, leading to increased output and decreased unemployment. This policy aims to address cyclical unemployment and boost real income in the short run.
Topic Definition
Expansionary monetary policy involves the central bank reducing interest rates to stimulate aggregate demand, leading to increased output and decreased unemployment. This policy aims to address cyclical unemployment and boost real income in the short run.
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