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JAMB Economics 2005 Question 8

Question 8

Financial Institutions

Above full employment level, an expansionary monetary policy will lead to a

  1. A.fall in aggregate demand
  2. B.decrease in aggregate supply
  3. C.fall in the inflation rate
  4. D.rise in the inflation rate
Show the answer and explanation

Answer: D (rise in the inflation rate)

Explanation

At full employment output cannot rise further, so extra money only raises spending and pushes prices up.