If the Fed unexpectedly shifts to a more restrictive monetary policy, which of the following will most likely occur in the short run?
A) a decrease in the real interest rate
B) an increase in unemployment
C) an increase in real GDP
D) an increase in inflation

Question

Quizplus · Accepted Answer

If the Fed unexpectedly shifts to a more restrictive monetary policy, it would likely lead to an increase in the interest rate, which could lead to a decrease in investment and consumer spending. This decrease in demand could lead to a reduction in production and therefore an increase in unemployment. Therefore, B is the correct choice. A is incorrect because if the Fed is shifting to a more restrictive policy, it is likely trying to increase interest rates, not decrease them. C and D are also incorrect because a more restrictive monetary policy would likely decrease real GDP and inflation, respectively.

If the Fed Unexpectedly Shifts to a More Restrictive Monetary