Reference no: EM131389748
Which of the following explains contractionary monetary policy in the long run?
a. Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.
b. Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well, causing the economy to expand.
c. Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract.
d. Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real GDP. In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.
e. Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred.
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