Which of the following is likely to happen if the Fed conducts a contractionary monetary policy?
A) Banks will make more loans.
B) Labor demand will increase.
C) The stock of money in the economy will decrease.
D) The nominal interest rate will decrease.

Question

Quizplus · Accepted Answer

Contractionary monetary policy involves decreasing the money supply in the economy, which would likely lead to a decrease in the stock of money in the economy (choice C). Option A is incorrect because if the Fed is engaging in a contractionary policy, lenders may be less likely to make loans. Option B is incorrect because if the money supply is decreasing, it is less likely that labor demand will increase. Option D is incorrect because a decrease in the nominal interest rate would indicate an expansionary policy, not a contractionary policy.

Which of the Following Is Likely to Happen If the Fed