In which of the following situations would the Fed conduct contractionary monetary policy?
A)The Fed believes that aggregate demand was growing too slowly to keep up with potential GDP.
B)The Fed fears that unemployment is climbing above the natural rate.
C)The Fed is concerned that aggregate demand would continue to exceed the growth in potential GDP.
D)The Fed is worried that deflation will become a problem.

Question

Quizplus · Accepted Answer

Contractionary monetary policy is used to slow down the economy and decrease spending when inflation is a concern. In this case, the Fed is worried that aggregate demand would continue to exceed the growth in potential GDP, which could lead to inflationary pressures. Therefore, the Fed would use contractionary monetary policy to decrease spending and reduce inflationary pressures.

In Which of the Following Situations Would the Fed Conduct