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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

How would a contractionary monetary policy affect the exchange rate, net exports, aggregate demand, and aggregate supply?

To determine

Affect of contractionary monetory policy over exchange rate, net exports, aggregate demand and aggregate supply.

Explanation

Contractionary monetary policy used to reduce the money supply in an economy. In the situation of excess demand leading to inflation, central bank raises bank rate. The rise in bank rate forces the banks to increase their lending rate of interest which make credit costlier. Consequently, demand for loans falls...

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