Figure 14-4 In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift
A) AD to the right and temporarily increase real GDP.
B) AD to the left and temporarily reduce real GDP.
C) AD to the right and SRAS to the left and lead to higher prices (inflation).
D) both AD and SRAS to the right and lead to an increase in real GDP.

Question

Figure 14-4  In Figure 14-4, an unanticipated shift to a more restrictive monetary policy will shift
A) AD to the right and temporarily increase real GDP. 
B) AD to the left and temporarily reduce real GDP. 
C) AD to the right and SRAS to the left and lead to higher prices (inflation). 
D) both AD and SRAS to the right and lead to an increase in real GDP.

Quizplus · Accepted Answer

An unanticipated shift to a more restrictive monetary policy will lead to a decrease in the money supply and an increase in interest rates. This will decrease consumption and investment spending, which will shift the aggregate demand (AD) curve to the left. As a result, there will be a reduction in real GDP.

Figure 14-4 in Figure 14-4, an Unanticipated Shift to a More