A contractionary monetary policy that has been imposed to reduce a sustained inflation will most likely

Question

Quizplus · Accepted Answer

A contractionary monetary policy will lead to a short-term decrease in output and employment, as well as a decrease in inflation. If inflation expectations adjust rapidly and accurately, the recession will be short-lived, and the economy will return to its long-run equilibrium with lower inflation and unemployment rates. However, if inflation expectations do not adjust appropriately, the recession may be prolonged, leading to long-lasting unemployment. Therefore, option E is the best answer.

A Contractionary Monetary Policy That Has Been Imposed to Reduce