If the Fed Shifts to a More Restrictive Monetary Policy

question 105

Multiple Choice

If the Fed shifts to a more restrictive monetary policy in order to help control inflation, the policy shift will generally

• A) stimulate aggregate demand and real output as soon as the policy is instituted.
• B) reduce aggregate demand immediately and quickly bring the inflation under control.
• C) reduce aggregate demand and help bring the inflation under control, but the primary effects may not be felt for several months (or quarters).
• D) lower real interest rates in the short run, but in the long run, real interest rates will rise.

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