To counteract a positive demand shock, the Federal Reserve uses _____ monetary policy, which _____.

Question

Quizplus · Accepted Answer

Contractionary monetary policy is used to counteract a positive demand shock. It typically involves increasing interest rates or reducing the supply of money in the economy, which in turn reduces spending and investment. This leads to a decrease in output and the price level, helping to stabilize the economy.

To Counteract a Positive Demand Shock, the Federal Reserve Uses