In the short run, an unanticipated shift to a more restrictive monetary policy is most likely to result in
A) a decrease in short-term interest rates.
B) a reduction in the growth rate of real GDP.
C) an increase in the rate of inflation.
D) an increase in employment.

Question

Quizplus · Accepted Answer

An unanticipated shift to a more restrictive monetary policy, such as a sudden increase in interest rates, is likely to decrease investment and consumption spending, leading to a reduction in the growth rate of real GDP. Additionally, higher interest rates can lead to lower borrowing, which can also reduce economic activity. Therefore, option B is the most likely outcome.

In the Short Run, an Unanticipated Shift to a More