What monetary policydecreases the economy's demand for goods and services, leading tolower product prices? In the short run, the change in prices induces firms to producefewer goods and services. This, in turn, leads to alower level of unemployment.

Question

Caden Baldwin

Business

9 April, 10:24

What monetary policydecreases the economy's demand for goods and services, leading tolower product prices? In the short run, the change in prices induces firms to producefewer goods and services. This, in turn, leads to alower level of unemployment.

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Answers (1)

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Paulina Burke · Answer 1

Answer: Contractionary monetary policy

Explanation:

When the central bank of a nation uses a contractionary monetary by decreasing the money supply then as a result the demand for goods and services decreases and price level in an economy also decreases. So, there is a reduction in the inflation level and we all know that for reducing a certain level of inflation then we have to accept a certain level of unemployment in an economy.

Lower price also affect the production level of the firms as it will be less profitable for them to produce more.