In the income-expenditure model, contractionary monetary policy leads to _____ interest rates, a(n) _____ in planned investment spending, and a(n) _____ in equilibrium GDP.

Question

Quizplus · Accepted Answer

Contractionary monetary policy leads to higher interest rates due to a decrease in the money supply. Higher interest rates decrease planned investment spending, as it becomes more expensive to borrow money. This decrease in investment spending leads to a decrease in equilibrium GDP, as spending decreases throughout the economy.

In the Income-Expenditure Model, Contractionary Monetary Policy Leads to _____