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An increase in the money supply decreases the equilibrium interest rate on the money market for any given level of income
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- A contractionary monetary policy lowers equilibrium real GDP in the short run, by increasing the interest rate. In an open economy, the net export effectA.has no effect on real GDP since changes in exports and imports cancel each other.B.reinforces the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, lowers U.S. imports and causes the real GDP to fall.C.reinforces the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, lowers U.S. exports and causes the real GDP to fall.D.weakens the effect of a contractionary monetary policy since the increase in the interest rate, increases the value of dollar, increases U.S. exports and causes the real GDP to increase.
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- Deflation can be defined as a general increase in the value of money