An Unanticipated Shift to a More Restrictive Monetary Policy by the Fed

question 45

Multiple Choice

An unanticipated shift to a more restrictive monetary policy by the Fed will

• A) increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.
• B) reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand.
• C) increase real interest rates, leading to higher asset prices that will stimulate aggregate demand.
• D) reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.