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 will increase.
D) The rate of inflation will decrease.

Question

Quizplus · Accepted Answer

Contractionary monetary policy involves reducing the money supply, typically by raising interest rates or decreasing the amount of money banks can lend. This ultimately leads to a decrease in aggregate demand, which can lower the rate of inflation. Choice A is unlikely as banks will likely reduce lending in response to a contractionary monetary policy. Choice B is also unlikely as reduced aggregate demand may lead to a decrease in labor demand. Choice C is incorrect as the stock of money will decrease with a contractionary monetary policy.

Which of the Following Is Likely to Happen If the Fed