Option B is the correct answer. With contractionary monetary policy, the effect will be to shift the AD curve to the left.
What is contractionary monetary policy?
- A type of monetary policy known as a contractionary monetary policy aims to slow down the rate of monetary expansion in order to fight inflation.
- An increase in inflation is regarded to be a sign of an overheated economy, which can occur as a result of protracted periods of economic expansion.
What are the effects of contractionary monetary policy?
- If implemented too vigorously, contractionary monetary policy might eventually result in an economic recession by raising unemployment and decreasing consumer and company borrowing and expenditure.
Option B is the correct answer. With contractionary monetary policy, the effect will be to shift the AD curve to the left.
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