Question

why is the slow growth that can result from a contractionary policy a positive effect?
○ it can increase loan interest rates.
○ it can decrease available credit.
○ it can increase the money supply.
○ it can decrease inflation.

Explanation:

Contractionary policy (like fiscal/monetary tightening) aims to reduce economic activity. Slow growth from it is positive because it combats inflation: reducing spending/demand lowers price pressures. Let's analyze options:

• "Increase loan interest rates" is a policy tool (not a positive effect of slow growth).
• "Decrease available credit" is a tool (not the positive outcome of slow growth).
• "Increase the money supply" is expansionary, opposite of contractionary.
• "Decrease inflation" matches: slow growth reduces demand-pull inflation, making this the positive effect.

Answer:

D. It can decrease inflation