-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD2. In the short run
A) the unemployment rate will be the same rate as before the expansionary monetary policy.
B) the unemployment rate will be larger than the rate before the contractionary monetary policy.
C) the unemployment rate will be smaller than the rate before the expansionary monetary policy.
D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Question

-Refer to the above figure. Unexpected contractionary monetary policy has caused the aggregate demand curve to shift to AD2. In the short run
A) the unemployment rate will be the same rate as before the expansionary monetary policy. 
B) the unemployment rate will be larger than the rate before the contractionary monetary policy. 
C) the unemployment rate will be smaller than the rate before the expansionary monetary policy. 
D) the unemployment rate can increase or decrease depending upon how much the LRAS will shift.

Quizplus · Accepted Answer

When contractionary monetary policy is implemented, it typically leads to a decrease in aggregate demand, shifting the AD curve to the left (from AD1 to AD2). This shift results in a lower level of output and, consequently, higher unemployment in the short run compared to the period before the policy was enacted.

-Refer to the Above Figure