For a macroeconomic policy curve of the forY ^ˆ higher inflation means A) lower aggregate demand because the Fed raises interest rates according to its policy rule. B) higher aggregate demand because higher interest rates produce higher levels of net exports. C) higher aggregate demand because higher interest rates increase personal consumption. D) b and c. E) none of the above.

Question

Quizplus · Accepted Answer

Higher inflation typically leads to the Federal Reserve (or any central bank) raising interest rates to control inflation. This increase in interest rates can dampen aggregate demand by making borrowing more expensive, thereby reducing spending on investment and consumption.

For a Macroeconomic Policy Curve of the ForY ˆ Higher

For a Macroeconomic Policy Curve of the ForY ^ˆ Higher