Considering only its direct effect on income, contractionary monetary policy tends to:
A)increase income and imports, shifting the U.S. trade balance in the direction of deficit.
B)increase income and imports, shifting the U.S. trade balance in the direction of surplus.
C)decrease income and imports, shifting the U.S. trade balance in the direction of deficit.
D)decrease income and imports, shifting the U.S. trade balance in the direction of surplus.

Question

Quizplus · Accepted Answer

Contractionary monetary policy typically involves increasing interest rates to reduce inflation, which can lead to a decrease in spending and investment. This reduction in spending can lead to lower income and imports, potentially improving the trade balance by reducing the deficit or moving it towards a surplus.

Considering Only Its Direct Effect on Income, Contractionary Monetary Policy