The Central Bank of Hamsterville and the government of Hamsterville are trying to control inflation by engaging in contractionary monetary policy and contractionary fiscal policy, respectively. Assume that the budget of Hamsterville was balanced prior to engaging in contractionary fiscal policy.
What will be the impact of contractionary fiscal policy and contractionary monetary policy on real gross domestic product(GDP) and the interest rate of Hamsterville?
Choose 1 answer:
A Real GDP will decrease; interest rates will increase.
(B) Effect on real GDP will be indeterminate; effect on interest rates will be indeterminate.
(c) Real GDP will decrease; impact on interest rates will be indeterminate.
(D) Real GDP will decrease; interest rates will decrease.
(E) Real GDP will increase; interest rates will increase.
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