Contractionary monetary policy causes
A)aggregate demand to rise and the price level to rise.
B)aggregate demand to fall and the price level to fall.
C)aggregate demand to rise and the price level to fall.
D)aggregate demand to fall and the price level to rise.
E)aggregate demand to rise and the price level to remain unchanged.

Question

Quizplus · Accepted Answer

Contractionary monetary policy typically involves increasing interest rates or reducing the supply of money in the economy, which leads to a decrease in aggregate demand. As demand falls, prices tend to decrease as well, hence both aggregate demand and the price level fall.

Contractionary Monetary Policy Causes