Assuming all else equal,if the Fed is expected to adopt a contractionary monetary policy,________.
A) the long-term real interest rate will increase
B) inflation expectations will increase
C) labor demand will increase
D) labor supply will increase

Question

Quizplus · Accepted Answer

A contractionary monetary policy is aimed at reducing the money supply and increasing interest rates to slow down economic growth and combat inflationary pressures. As a result, the long-term real interest rate is likely to increase. Inflation expectations are likely to decrease instead of increase, as the policy is designed to combat inflation. Labor demand is likely to decrease as firms face higher borrowing costs and reduced access to credit. Labor supply is not directly affected by monetary policy.

Assuming All Else Equal,if the Fed Is Expected to Adopt