19. The dynamic effects of monetary expansion on output, interest rates, and prices

Interacting with graphs to learn more about the dynamic effects of monetary expansion

Monetary policy can have powerful effects on many variables in the economy. Its immediate impact is on the money supply. However, its ultimate targets – output, prices, and interest rates – change over time after a change in monetary policy. Let’s explore the dynamic effects of monetary expansion by looking at what happens in the AS/AD and the IS/LM relationships.

Objectives

• Identify the short-run effect of monetary policy on output, prices, and interest rates

• Identify the long-run effect of monetary policy on output, prices, and interest rates

Click on the 'Exploration' link above to continue.