Question

Which of the following explains contractionary monetary policy in the long run? 

Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP). In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, causing the economy to contract. 

Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product (GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right as well causing the economy to expand 

Contractionary monetary policy shifts aggregate demand to the left, moving the economy from long-run equilibrium to a short-run equilibrium with a lower price level and a lower level of real gross domestic product (GDP). In the long run, as resource prices fall, the short-run aggregate supply curve shifts to the right, bringing the economy back to a long-run equilibrium, where no real changes to GDP have occurred. 

Contractionary monetary policy shifts aggregate demand to the right. moving the economy from long run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product (GDP). In the long run, as resource prices rise, the short-run aggregate supply curve shifts to the left, bringing the economy back to a long run equilibrium where no real changes to GDP have occurred 

Contractionary monetary policy shifts aggregate demand to the right, moving the economy from long-run equilibrium to a short-run equilibrium with a higher price level and a higher level of real gross domestic product (GDP). In the long run, as resource prices rise, the aggregate demand curve shifts back to the left, bringing the economy back to a long run equilibrium, where no real changes to GDP have occurred.

Answer 1

concrationary monetary policy leads to decreases in money supply, that decreases aggregate demand in economy and aggregate demand curve shift to left and in the long run due to decreases in money supply expectation about price level also decreases that leads to increase in labour supply and aggregate supply so aggregate supply curve shift to the right and long-run equilibrium output reestablished with the lower price level and there is no real change in output (GDP).

so option C is correct