Which of the Following Explains Contractionary Monetary Policy in the Long

question 91

Multiple Choice

Which of the following explains contractionary monetary policy in the long run?

• A) Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP).In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.
• B) Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP.In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.
• C) Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP.In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.
• D) Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP.In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand.
• E) Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real GDP.In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract.

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Definitions:

Adjusting Entry

A journal entry made at the end of an accounting period to record unbilled, uncollected, or unpaid transactions, ensuring the financial statements are accurate.

Insurance Expense

The cost incurred by a business or individual for obtaining protection against various risks, recorded as an expense in the accounting period in which it is incurred.

Straight-Line Method

A depreciation method in which an asset's cost is evenly spread over its useful life, resulting in equal depreciation charges each period.

Salvage Value

The estimated amount that an asset is worth at the end of its useful life.