Respond to the following in a minimum of 175 words: Explain the chain of events that occurs for expansionary and contractionary monetary policy to affect the long-run equilibrium level of real gross...

Running Head: MACRO ECONOMICS                            1
MACRO ECONOMICS                                    3
MACRO ECONOMICS

The monetary policies, which stimulate borrowing and lower the interest rate in the market is called expansionary monetary policy. Similarly, on the other hand, the policies, which raise the interest and lower the borrowing rate is called contractionary monetary policy.
Figure 1: Monetary Policy and Its Effects on Economy and GDP
To reach an equilibrium in the long run the best monetary policy is to be counter cycle in nature. This will help the economy adapt the set policy according to the situation. For example, if an...