If the economy experiences an inflationary gap, a contractionary monetary policy will _______ investment and _______ interest rates.

Question

Quizplus · Accepted Answer

A contractionary monetary policy aims to decrease the money supply in the economy, which will decrease investment and increase interest rates. This is because the decrease in the money supply will make it more expensive for businesses and consumers to borrow money, thereby reducing investment and increasing interest rates.

If the Economy Experiences an Inflationary Gap, a Contractionary Monetary