What effect does restrictive monetary policy have on short-term real interest rates?
A) Restrictive monetary policy tends to push short-term interest rates upward.
B) Restrictive monetary policy tends to push short-term interest rates downward.
C) The effect of restrictive monetary policy on short-term interest rates is unpredictable.
D) Restrictive monetary policy has no effect on short-term interest rates.

Question

Quizplus · Accepted Answer

Restrictive monetary policy involves reducing the money supply and increasing interest rates, which tends to push short-term interest rates upward. This is because a smaller money supply creates a higher demand for borrowing, leading to higher interest rates.

What Effect Does Restrictive Monetary Policy Have on Short-Term Real