Assuming That All Else Remains Constant, Contractionary Monetary Policy Causes

question 64

Multiple Choice

Assuming that all else remains constant, contractionary monetary policy causes aggregate demand to:

• A)rise by less than it otherwise would have and the price level to rise by less than it otherwise would have.
• B)fall by less than it otherwise would have and the price level to rise by less than it otherwise would have.
• C)rise by more than it otherwise would have and the price level to rise by less than it otherwise would have.
• D)fall by more than it otherwise would have and the price level to rise by more than it otherwise would have.

---

Definitions:

Recessionary Gaps

Situations where the real GDP is lower than the potential GDP due to insufficient aggregate demand, leading to unemployment and underused resources.

Equilibrium GDP

The point at which the aggregate supply and aggregate demand within an economy are equal, indicating a state of economic balance.

Recessionary Gap

The difference between the actual output of an economy and its potential output, occurring during periods of economic downturn.

Equilibrium GDP

The level of Gross Domestic Product (GDP) at which aggregate supply equals aggregate demand.