Suppose the central bank pursues contractionary monetary policy. Such an action will cause:

Question

Quizplus · Accepted Answer

The natural real interest rate is determined by long-term factors such as productivity and demographics, not by short-term central bank policies. Contractionary monetary policy typically raises short-term nominal interest rates and can affect the economy in various ways, but it does not directly change the natural real interest rate.

Suppose the Central Bank Pursues Contractionary Monetary Policy