All else equal, if the Federal Reserve follows a contractionary monetary policy, then the money supply curve will shift _____, and the equilibrium interest rate will:

Question

Quizplus · Accepted Answer

A contractionary monetary policy involves reducing the money supply, which shifts the money supply curve to the left. This reduction in money supply leads to an increase in the equilibrium interest rate as the demand for a now scarcer resource (money) exceeds the supply at the previous interest rate, pushing rates up.

All Else Equal, If the Federal Reserve Follows a Contractionary