Figure 14-4
-In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift
A)AD to the right and temporarily increase real GDP.
B)AD to the left and temporarily reduce real GDP.
C)AD to the right and SRAS to the left and lead to higher prices (inflation).
D)both AD and SRAS to the right and lead to an increase in real GDP.

Question

Figure 14-4 
-In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift
A)AD to the right and temporarily increase real GDP. 
B)AD to the left and temporarily reduce real GDP. 
C)AD to the right and SRAS to the left and lead to higher prices (inflation). 
D)both AD and SRAS to the right and lead to an increase in real GDP.

Quizplus · Accepted Answer

A more restrictive monetary policy typically reduces the money supply, leading to higher interest rates, decreased investment and consumption, and thus a leftward shift in the Aggregate Demand (AD) curve, temporarily reducing real GDP.

Figure 14-4 -In Figure 14-4, an Unanticipated Shift to a More Restrictive