Explain Why a Contractionary Monetary Policy Would Not Necessarily Result

question 62

Essay

Explain why a contractionary monetary policy would not necessarily result in interest rates rising by the full amount of what the initial contraction would produce. In other words, if there were no impact on the goods market the interest rate would rise to a higher level. Given that there is an impact explain how this works.

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Definitions:

Will to Develop

The determination and commitment shown by individuals or societies to improve economic conditions, infrastructure, and standards of living through innovation and investment.

Economic Growth

An increase in a country’s ability to produce goods and services, reflected in an increase in real GDP over time.

Human Capital Investment

The process of increasing the value of a workforce through education, training, and health improvements.

Technologies

The application of scientific knowledge for practical purposes, especially in industry and everyday life.