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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Definitions:

Light Waves

Electromagnetic waves that are visible to the human eye, responsible for the sense of sight.

Kinesethesis

The sense that detects body position, weight, or movement of the muscles, tendons, and joints.

Transduction

The process through which a physical stimulus is converted into a signal within the nervous system.

Muscles

Tissues in the body that have the ability to contract, enabling movement of various parts of the body.