Contractionary monetary policy on the part of the Bank of Canada results in
A)an increase in the money supply, an increase in interest rates, and an increase in GDP.
B)a decrease in the money supply, an increase in interest rates, and a decrease in GDP.
C)an increase in the money supply, a decrease in interest rates, and an increase in GDP.
D)a decrease in the money supply, a decrease in interest rates, and a decrease in GDP.
E)a decrease in the money supply, an increase in interest rates, and an increase in GDP.

Question

Quizplus · Accepted Answer

Contractionary monetary policy is aimed at reducing the overall money supply in the economy, which in turn increases interest rates due to reduced availability of loanable funds. This results in a decrease in consumer and business spending, ultimately leading to a decrease in GDP.

Contractionary Monetary Policy on the Part of the Bank of Canada