The medium-run effect of a monetary policy that seeks to lower the rate of inflation is best depicted by
A)the AD curve shifting to the right.
B)an upward movement of the IA line.
C)an upward movement along the AD curve.
D)a downward movement along the AD curve.
E)the AD curve shifting to the left.

Question

Quizplus · Accepted Answer

When monetary policy is used to lower the rate of inflation, it typically involves a decrease in the money supply and an increase in interest rates. This leads to a decrease in aggregate demand (AD) as firms and households cut back on spending. As a result, the AD curve shifts to the left, as there is less overall demand for goods and services in the economy. This is why the best choice is D, a downward movement along the AD curve.

The Medium-Run Effect of a Monetary Policy That Seeks to Lower