With sticky prices, in the stylized DSGE model, a monetary contraction ________, which ________.
A) raises inflationary expectations; pushes the Phillips curve up
B) lowers inflationary expectations; expands labor supply
C) decreases aggregate demand; decreases labor demand
D) raises taxes; reduces labor demand
E) represents a fiscal expansion; pushes up labor demamd

Question

Quizplus · Accepted Answer

With sticky prices, a monetary contraction decreases aggregate demand as it reduces the amount of money in circulation. This reduction in demand causes a decrease in labor demand, leading to higher unemployment rates.

With Sticky Prices, in the Stylized DSGE Model, a Monetary