Which of the Following Best Describes How Contractionary Monetary Policy

question 142

Multiple Choice

Which of the following best describes how contractionary monetary policy affects the aggregate demand curve in the aggregate demand-aggregate supply model?

• A) Contractionary monetary policy directly pulls money out of the loanable funds market.This lowers the interest rate,which provides a larger incentive for firms to invest.Investment is a component of aggregate demand,so this shifts aggregate demand to the right.
• B) Contractionary monetary policy directly puts money into the loanable funds market.This lowers the interest rate,which provides a larger incentive for firms to invest.Investment is a component of aggregate demand,so this shifts aggregate demand to the right.
• C) Contractionary monetary policy directly puts money into the loanable funds market.This raises the interest rate,which provides a larger incentive for firms to invest.Investment is a component of aggregate demand,so this shifts aggregate demand to the right.
• D) Contractionary monetary policy directly puts money into the loanable funds market.This lowers the interest rate,which provides a larger incentive for firms to invest.Investment is a component of aggregate demand,so this shifts aggregate demand to the left.
• E) Contractionary monetary policy directly pulls money out of the loanable funds market.This raises the interest rate,which provides a lesser incentive for firms to invest.Investment is a component of aggregate demand,so this shifts aggregate demand to the left.

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Definitions:

Progressive Income Tax

A tax system in which the tax rate increases as the taxable amount increases, generally applied to income tax to ensure higher earners pay a larger percentage of their income.

Unemployment Compensation

Unemployment Compensation is a government-provided financial assistance to individuals who have lost their job through no fault of their own, aiming to support them temporarily.

Tax Revenue

The income that is collected by the government through various forms of taxes, used to fund public services and obligations.

Government Spending

Expenditures by government bodies on goods and services that influence the economy's overall activity.