In the Long Run, You Would Expect Contractionary Monetary Policy

question 24

Multiple Choice

In the long run, you would expect contractionary monetary policy to

• A) leave real interest rates and real GDP unchanged even as prices fall.
• B) reduce real interest rates and real GDP despite constant prices.
• C) reduce real interest rates, prices, and real GDP all at the same time.
• D) increase real interest rates while prices and real GDP slump.
• E) none of the above.

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Definitions:

Inductive Reasoning

A reasoning method where several assumptions, considered or proven to be true frequently, are merged to reach a particular conclusion.

Deductive Reasoning

A logical process where conclusion is based on the concordance of multiple premises that are generally assumed to be true.

Abductive Reasoning

A form of logical inference that begins with an observation or set of observations then seeks to find the simplest and most likely explanation.

Analogies

Analogies are comparisons made between two things that are otherwise unlike, but have some similarities, often used to explain or clarify complex concepts by relating them to more familiar ones.