Contractionary monetary policy causes a short-run _____ in interest rates in the short run and _____ in interest rates in the long run.

Question

Quizplus · Accepted Answer

Contractionary monetary policy typically leads to an increase in interest rates in the short run as the central bank reduces the money supply. In the long run, however, interest rates may return to their original level as the economy adjusts to the new monetary conditions.

Contractionary Monetary Policy Causes a Short-Run _____ in Interest Rates