Answer:
... they will expect inflation to decrease and will adjust wages so that the real wage remains unchanged.
Explanation:
When the FED carries on a contractionary monetary policy it should reduce the money supply by increasing interest rates. This should lower consumption and therefore lower the inflation rate.
Generally wages are set so that they can match or exceed the inflation rate by a little margin, so if both workers and employers believe that the inflation rate will lower, then the wage increases should be lower. That way the purchasing power of the workers will not change.
Answer:
Drop
Is constant
Explanation:
Contractual monetary supply is an important mechanism for reducing inflation.
