Which of the following represents a short-run effect of a monetary contraction?
A)a reduction in output
B)an increase in the interest rate
C)a reduction in the price level
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

A monetary contraction leads to a decrease in the money supply, which leads to an increase in interest rates, a decrease in output, and a decrease in the price level in the short run. Therefore, all of the above choices represent short-run effects of a monetary contraction.

Which of the Following Represents a Short-Run Effect of a Monetary