Restrictive monetary policy will eventually affect the upward-sloping AS-curve since
A)higher interest rates will increase the cost of production
B) higher interest rates will reduce the capital stock which will, in turn, reduce potential GDP
C) the resulting unemployment will cause downward pressure on nominal wages, so the cost of production will decrease
D)real wages will decline while nominal wags remain constant
E)firms will start laying off workers in anticipation of a decline in aggregate demand

Question

Quizplus · Accepted Answer

Restrictive monetary policy can lead to higher unemployment, which puts downward pressure on nominal wages, reducing production costs and potentially shifting the AS curve.

Restrictive Monetary Policy Will Eventually Affect the Upward-Sloping AS-Curve Since