In which sequence will events occur when the economy adjusts to an expansionary monetary policy, in the short run and then in the long run?.

1. The Fed uses open market operations to increase the money supply, thus lowering interest rates and stimulating investment.

Expansionary monetary policy is done to stimulate economy by increasing money supply. It lowers interest rates and leaves more money for consumption and investment.

2.  Increased aggregate demand leads to some higher prices and more total output.

Increased AG will lead to prices being higher in response. This would spur producers to produce more thereby increasing output.

3. Sticky input prices adjust to inflation.

Input prices will rise overtime to match the increase in prices.

4. Producers lay off some workers in response to higher input prices, causing a decrease in aggregate supply.

When the inputs rise, production becomes more expensive so producers will have to lay off workers to maintain profitability. They will also supply less goods as a result.

5.  In the long run, equilibrium returns to the same initial production level.

In the long run therefore, the reduction in AS leads to production returning to pre-monetary policy figures.

Good Luck!

cognitive overload: having a lot on your mind impairs decision-making and tends to result in the simplest, but not necessarily best, option being selected.

empathy gaps: overlooking how you might feel in a different situation can result in unnecessary purchases, such as overbuying when shopping for food on an empty stomach.

optimism and overconfidence: wearing rose-tinted glasses and having unrealistic expectations about the future can affect money management and leave you unprepared for a change in circumstance.

instant gratification: seeking instant gratification drives impulsive spending and can undermine long-term planning and savings.

harmful habits: automatic or mindless behaviour can amplify a poor financial decision as it becomes a recurring event.

social norms: we are heavily influenced by the actions of others; while this can be in certain circumstances, it also contributes to the pressure to keep up with the joneses through conspicuous consumption.

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