Suppose policy makers implement an unexpected monetary contraction. Which of the following will occur as a result?
A) A decrease in stock prices.
B) An increase in stock prices.
C) Stock prices decrease only if goods prices decrease.
D) An ambiguous effect on stock prices.
E) No change in stock prices.

Question

Quizplus · Accepted Answer

An unexpected monetary contraction typically leads to higher interest rates, which can decrease investment and consumer spending. This often results in lower corporate profits and a decrease in stock prices.

Suppose Policy Makers Implement an Unexpected Monetary Contraction