Answer to Question #135720 in Macroeconomics for Shudufhadzo

Question

In the Keynesian model, a contractionary monetary policy will

Answer 1

In the Keynesian model, a contractionary monetary policy will shifts the LM curve up. The money supply decreases, and the interest rates rises.

The economy moves up along the IS curve.

The rise in the rate of interest will decrease volume of investment. This result in businesses borrowing less,they do not expand as much and hire fewer workers thus reducing demand and slows the economy.