Suppose the Fed engages in a policy to reduce the inflation rate for any given level of real GDP. This would be depicted by a(n)
A)downward movement along the monetary policy line.
B)leftward shift of the monetary policy line.
C)upward movement along the monetary policy line.
D)rightward shift of the monetary policy line.
E)rightward shift of the AD curve.

Question

Quizplus · Accepted Answer

A policy aimed at reducing the inflation rate for any given level of real GDP by the Fed would be depicted as a leftward shift of the monetary policy line. This is because the Fed would likely increase interest rates or use other contractionary monetary policies to reduce inflation, which effectively makes money more expensive and reduces the overall demand for goods and services, thus shifting the monetary policy line to the left.

Suppose the Fed Engages in a Policy to Reduce the Inflation