Suppose the Central Bank Engages in Contractionary Monetary Policy That

question 28

Multiple Choice

Suppose the central bank engages in contractionary monetary policy that results in lower money growth. This lower money growth will cause which of the following in the medium run?

• A) Lower real interest rates and lower nominal interest rates.
• B) Lower real interest rates and higher nominal interest rates.
• C) Higher real interest rates and higher nominal interest rates.
• D) Higher real interest rates and lower nominal interest rates.
• E) No change in real interest rates and lower nominal interest rates.

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Definitions:

Absolute Advantage

The ability of an individual, company, or country to produce a good or service more efficiently than competitors, using fewer resources.

Opportunity Cost

A different way to describe it would be the cost of missing out on the benefits of the second-best option when a choice is made.