Suppose the central bank engages in contractionary monetary policy that results in lower money growth.This lower money growth will cause which of the following in the short run?
A)lower real interest rates and lower nominal interest rates
B)lower real interest rates and higher nominal interest rates
C)higher real interest rates and higher nominal interest rates
D)higher real interest rates and lower nominal interest rates
E)no change in either nominal or real interest rates

Question

Quizplus · Accepted Answer

Contractionary monetary policy reduces the money supply, leading to higher real interest rates due to decreased liquidity. This also causes higher nominal interest rates as the central bank raises rates to control inflation.

Suppose the Central Bank Engages in Contractionary Monetary Policy That