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In 1979, the Federal Reserve Decided to Tighten Monetary Policy

Question 130

Multiple Choice

In 1979, the Federal Reserve decided to tighten monetary policy in order to reduce inflation, which had risen to double-digit levels. The AD/AS model framework suggests that the short-run effect of this policy was to reduce:


A) output primarily with little change in inflation.
B) inflation primarily with little change in output.
C) both inflation and output.
D) neither inflation nor output.

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