Question

For a while in the 1920s, inflation in some ways benefited the German economy. However, it would not have made sense for Germany’s central bank to steadily continue printing new money as a way of boosting the economy. Why not? Choose one or more: A. Expansionary policy boosts the economy in the short run but not the long run. B. The government cannot go on printing money indefinitely. C. By increasing wages, inflation tends to make labor too expensive. D. For inflation to be of benefit, it has to come as a surprise.

Answer 1

Expansionary policy boosts the economy in the short run but not the long run.

Option A

Explanation:

Germany was considered one of the richest countries before World War 1. Their economy was very steady and there is no match for them among countries.

Due to the effect of World War 1 the country was into hyperinflation and all the prices of perishable things and food items has increased at a very fast pace. To balance the inflation they applied Expansionary monetary policy which uses the central bank to print money to stimulate the economy.

The increase in supply of printed money will ease out the lending rates and it will boost the economy.