When the Fed Unexpectedly Reduces the Money Supply, It Will

question 60

Multiple Choice

When the Fed unexpectedly reduces the money supply, it will cause a decrease in aggregate demand because

• A) real interest rates will rise, lowering business investment and consumer spending.
• B) the dollar will depreciate on the foreign exchange market, leading to an increase in net exports.
• C) lower interest rates will cause the value of assets (for example, stocks) to rise.
• D) the national debt will increase, causing consumers to reduce their spending.

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