Monetary Policy Interest Rates and Long-Run Growth

Question

If the central bank increases the money supply through expansionary policies, what is the likely effect on interest rates and the long-run production possibilities of the economy as depicted by the PPC?

Accepted Answer

Lower interest rates stimulate investment in capital goods, which over time can shift the PPC outward.

Answer

The rise in the money supply has no effect on long-run productive capacity and leaves the PPC unchanged.

Answer

Expansionary policy only changes the allocation of resources along the PPC without shifting its position.

Answer

An increase in the money supply immediately increases consumer spending, moving the economy along the PPC without affecting capital goods.