Figure 28-1
-Refer to Figure 28-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary policy, where would the economy end up in the short run?

Question

Figure 28-1 
-Refer to Figure 28-1. Suppose that the economy is currently at point A. If the Federal Reserve engaged in contractionary monetary policy, where would the economy end up in the short run?

Quizplus · Accepted Answer

Contractionary monetary policy reduces the money supply, which shifts the aggregate demand curve to the left. This causes the economy to move from point A to point B in the short run.

Figure 28-1 -Refer to Figure 28-1. Suppose That the Economy Is Currently