Question

If a central bank uses the tools of monetary policy to reduce the demand for goods and services, the likely result is inflation and unemployment in the short run.

a higher, higher
b. lower, higher
c. lower, lower
d. higher, lower​

Answer 1

b. lower, higher

Step-by-step explanation:

When the demand of the goods and services is decreased so the central bank required to extract the excess money supply. This results in rise in the aggregate demand and high prices.

Now for reducing the money supply, the central bank used the contractionary monetary policy due to which the rate of interest would more. If there is more interest rate so there would be less investment and more saving that lesser the level of consumption.

So, it would reduce the excess money, if it is decreased so the demand would also decline due to which the price also fall this results in lesser inflation. As if there is a decline in the aggregate demand, so many factories would decreased their supply even some shut down because of the high unemployment

hence, the correct option is b.