The short-run impact of an unanticipated shift to a more restrictive monetary policy is most likely to be a reduction in
A) prices, while real output is unaffected.
B) the rate of unemployment.
C) real output.
D) the size of the budget deficit.

Question

Quizplus · Accepted Answer

An unanticipated shift to a more restrictive monetary policy, such as increasing interest rates, will make borrowing more expensive, leading to a decrease in investment and consumption. This will cause a decrease in overall demand in the economy, and as a result, real output is likely to decrease in the short run.

The Short-Run Impact of an Unanticipated Shift to a More