When The Fed initiates contractionary policy, which of the following multiple events will occur? A. Real...
When The Fed initiates contractionary policy, which of the following multiple events will occur?
A. Real interest rates will decrease, bank deposits will increase and the value of bank loans will increase.
B. Real interest rates will increase, stock prices will decrease and the volume of bank loans will decrease.
C. Real interest rates will increase, stock prices will increase and moral hazard will increase
D. Real interest rates will decrease, stock prices will increase and the dollar will appreciate in value
Homework Answers
Answer
Option B
B. Real interest rates will increase, stock prices will decrease and the volume of bank loans will decrease
The contractionary monetary policy decreases the money supply. It increases the interest rate. The increase in interest rate decreases stock prices and also it decreases reserves. The decrease in reserves decreases loans.
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