Monetary Policy Interest Rates and Long-Run Growth
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?
A
Expansionary policy only changes the allocation of resources along the PPC without shifting its position.
B
The rise in the money supply has no effect on long-run productive capacity and leaves the PPC unchanged.
C
Lower interest rates stimulate investment in capital goods, which over time can shift the PPC outward.
D
An increase in the money supply immediately increases consumer spending, moving the economy along the PPC without affecting capital goods.
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