According to the policy irrelevance proposition
A) monetary policy can effectively reduce the rate of unemployment in the short run.
B) workers are not rational in the long run.
C) expansionary monetary policy will only lead to a higher rate of inflation in the long run.
D) the Phillips curve slopes upward, not downward as traditionally assumed.
Question 2
As a result of an increase in the money supply, some banks may end up with excess reserves. What is the likely result?
A) Banks will raise interest rates.
B) Banks will make more loans, thereby contributing to a decrease in aggregate demand.
C) Banks will make more loans, thereby contributing to an increase in aggregate demand.
D) Banks will spend the excess reserves by paying their employees more.
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International Economics: Theory and Policy (10th Edition)