If the Fed decides to tighten monetary policy because the inflation rate has risen to a level inconsistent with economic efficiency and long-term growth:
A)in the short run the SRAS curve will shift downward and a recessionary gap is created.
B)in the long run the AD curve will shift to the left and the long-run equilibrium is restored.
C)in the short run the AD curve shifts to the left and a recessionary gap is created.
D)in the short run the AD curve shifts to the right and a recessionary gap is created.

Question

Quizplus · Accepted Answer

In the AD-AS diagram a tightening of monetary policy is seen as a shift in the AD curve left. In the short-term this inflicts pain in the form of a recession gap (a decline in output and higher unemployment).

If the Fed Decides to Tighten Monetary Policy Because the Inflation