When the Fed uses contractionary policy
A)the price level rises higher than it would if the Fed did not pursue policy.
B)the price level rises less than it would if the Fed did not pursue policy.
C)it does not change the price level.
D)it causes inflation.

Question

Quizplus · Accepted Answer

Contractionary policy is designed to decrease the money supply and slow down economic growth. This results in a decrease in aggregate demand and typically leads to a decrease in the overall price level. Therefore, the price level would rise less than it would if the Fed did not pursue contractionary policy.

When the Fed Uses Contractionary Policy