A contractionary monetary policy shifts the MP curve to the ________, reducing ________, everything else held constant.
A) left; output and increasing interest rates
B) left; both real output and interest rates
C) right; both interest rates and real output
D) right; interest rates and increasing real output

Question

Quizplus · Accepted Answer

A contractionary monetary policy shifts the MP curve to the left, which means that the central bank is reducing the money supply, increasing the interest rates. This policy is used to control inflation and slows down the economy, reducing output. Therefore, both real output and interest rates decrease, making option A the correct answer.

A Contractionary Monetary Policy Shifts the MP Curve to the ________