Solved

Suppose the Economy Is Initially in Long-Run and Short-Run Equilibrium

Question 40

Multiple Choice

Suppose the economy is initially in long-run and short-run equilibrium.If the Bank of Canada decides to pursue a contractionary monetary policy,we will see


A) bond prices fall,interest rates fall,aggregate demand remain unchanged as consumption spending decreases,but investment spending increases.Real national income remains constant in both the short run and the long run,but the price level falls in both.
B) bond prices fall,interest rates rise,aggregate demand fall as investment and consumption spending decrease,and real national income and the price level decreasing in the short-run,but only the price level decreasing in the long run.
C) bond prices fall,interest rates rise,aggregate demand falls as investment spending decreases and consumption spending remains unchanged,and real national income and the price level decrease in the short run,but only the price level fall in the short run.
D) interest rates rise but no change in bond prices.Aggregate demand falls as consumption spending and investment spending decrease,and the price level and real national income fall in both the short run and the long run.

Correct Answer:

verifed

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Related Questions

Unlock this Answer For Free Now!

View this answer and more for free by performing one of the following actions

qr-code

Scan the QR code to install the App and get 2 free unlocks

upload documents

Unlock quizzes for free by uploading documents