The central bank decided to implement a contractionary monetary policy action.?

what would you expect to happen to the nominal interest rate,the real interest rate and the money supply?Under what circumstances would this type of policy action b most appropriate?is it the case that some sectors of the economy will feel the impact of higher interest rates than other sectors

Answer:
If the central bank decides to implement a contractionary monetary policy action., we can expect the nominal interest rate and the real interest rate to rise and the money supply to decline. This type of policy action would be most appropriate under conditions of full or near full emplyment level output falling short of aggregate demand and fast rising price spiral. All sectors of the economy will be affected by the rise in interest rates, but the more capital intensive sectors of the economy will feel the impact of higher interest rates more than other sectors
Use the IS-LM model to answer these questions.

A contraction in the money supply will increase nominal interest rates in the short run. This will also raise the real rate, since inflation is slow to respond to changes in the money supply.

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