When the Fed Changes Monetary Policy to Reduce the Rate

question 20

Multiple Choice

When the Fed changes monetary policy to reduce the rate of inflation, which of the following should occur in the medium run?

• A)The AD curve should shift to the right.
• B)The IA line should shift down.
• C)The AD curve should shift to the left.
• D)The IA line should shift up.
• E)The aggregate expenditure line should shift down.

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Definitions:

Minimizing Losses

A strategy focused on reducing the amount of money or resources wasted or not utilized efficiently.

Output

The total amount of goods and services produced by an economy or a firm in a specific period.

Natural Monopoly

A market condition where a single firm can supply a good or service to an entire market at a lower cost than two or more firms, often due to high fixed costs or unique resources.

Competitive Industries

Sectors of the economy characterized by a large number of firms competing fiercely with one another to sell similar products or services.