### CFA Practice Question

Which of the following is incorrect?
A. The historical record shows that periods of increase of money supply tend to be associated initially with faster growth in GDP.
B. Compared to a monetary policy that has not been anticipated an expansionary monetary policy that has been anticipated will likely result in a larger increase in real output and a fall in real interest rates.
C. The selling government securities by the FED is a contractionary monetary policy.
Explanation: Compared to a monetary policy that has not been anticipated, an expansionary monetary policy that has been anticipated will likely result in a larger increase in real output and a fall in real interest rates.

### User Contributed Comments6

User Comment
JeremyMartin how is this answer helpful? it just repeats the incorrect statement?!!
Sandar why is it so? is the real answer

in both situation, they have the same real output?
ninad123 C is a correct statement for A we have formula MV=PO
PO=> GDP so A is correct,

B has to be incorrect, logically also an anticipated thing will cause less volatility than unanticipated thing. So B is incorrect
cwest020 When monetary policy is "anticipated" then the increase in money supply increases the price level. And when it is not anticipated we will see more "real" output. When it is anticipated you will raise the prices on what you sell because you realize the value of \$1 has decreased. If it is not anticipated you do not increase your prices and banks lend more \$\$ out, more consumers buy your product, demand increases than you raise your prices. But this way some of the new money was able to produce some "real" output before price levels adjusted. This is my interpretation.

Nind123 MV=PY
y= GDP and P= price level.
sheridanla Rational Expectations hypothesis: anticipated monetary policy does not affect output or unemployment.