Monetary policy controls the money supply, affecting interest rates and economic factors. Views differ on how expansionary monetary policy affects unemployment, income, and output. Tools include regulating bank reserves, altering interest rates, and increasing/decreasing lending. The classical view holds a direct correlation between money supply and price levels, while Keynesian theory suggests an indirect link. […]
The expansionary gap is the difference between real GDP and potential GDP in an economy, caused by excess demand in relation to supply. It can be a result of monetary policies, such as lowering interest rates to stimulate consumption. This can lead to demand inflation and price increases. An expansionary gap is an economic term […]
