Contractionary monetary policy causes:
a. Aggregate demand to rise, prices to rise, and real GDP to fall.
b. Aggregate demand to rise, prices to rise, and real GDP to rise.
c. Aggregate demand to fall, prices to fall, and real GDP to fall.
d. Aggregate supply to rise, prices to rise, and real GDP to rise.
e. Aggregate supply to rise, prices to rise, and real GDP to fall.
Question 2
Assume that the central bank lowers the discount to increase the nation's monetary base. If the nation has highly mobile international capital markets and a fixed exchange rate system, what happens to the real GDP and reserve-related (central bank) transactions in the context of the Three-Sector-Model? State your answer after the macroeconomic system returns to complete equilibrium.
a. Real GDP remains the same and reserve-related (central bank) transactions becomes more positive (or less negative).
b. Real GDP falls and reserve-related (central bank) transactions remains the same.
c. Real GDP and reserve-related (central bank) transactions remain the same.
d. Real GDP rises and reserve-related (central bank) transactions remains the same.
e. There is not enough information to determine what happens to these two macroeconomic variables.
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