Everything else held constant,a monetary contraction is characterized by ________ output and ________ interest rates.
A)rising;rising
B)rising;falling
C)falling;rising
D)falling;falling

Question

Quizplus · Accepted Answer

A monetary contraction involves a decrease in the money supply, which leads to a decrease in spending and consumption. This decrease in spending leads to a decrease in output (GDP). To counteract the decrease in output, interest rates are increased to encourage savings and decrease borrowing, which also helps to decrease spending. Therefore, as output falls, the interest rates rise.

Everything Else Held Constant,a Monetary Contraction Is Characterized by ________