In comparison to when monetary policy is not contractionary, under a contractionary monetary policy, the unemployment rate is____ and the inflation rate is____ over time.

Question

Quizplus · Accepted Answer

Under a contractionary monetary policy, the central bank raises interest rates and reduces the money supply to curb inflation, which can slow economic growth and increase unemployment in the short term. Therefore, the unemployment rate is higher, and the inflation rate is lower over time.

In Comparison to When Monetary Policy Is Not Contractionary, Under