Which of the following outcomes is likely if a contractionary monetary policy is adopted?
A) Real wages will increase if nominal wages are fixed.
B) Real output will increase if nominal wages are fixed.
C) The aggregate price level will rise.
D) The demand for labor will increase.

Question

Quizplus · Accepted Answer

A contractionary monetary policy typically involves increasing interest rates or reducing the money supply, which can lead to a decrease in spending and investment. This can slow down the economy, potentially leading to lower inflation rates. If nominal wages are fixed and the price level decreases, real wages (the purchasing power of wages) would increase, as the same amount of nominal wages can buy more goods and services.

Which of the Following Outcomes Is Likely If a Contractionary