With an upward-sloping aggregate supply curve,tight monetary policy:
A) Reduces aggregate demand and decreases inflationary pressures.
B) Reduces aggregate demand and increases inflationary pressures.
C) Raises aggregate demand and increases inflationary pressures.
D) Raises aggregate demand and decreases inflationary pressures.

Question

Quizplus · Accepted Answer

With an upward-sloping aggregate supply curve, a tight monetary policy will reduce aggregate demand, which will lead to a decrease in inflationary pressures. This is because the increase in interest rates and reduction in money supply will lead to a decrease in spending, causing a shift from AD to AD'. As a result, the equilibrium output and price level will decrease along the AS curve, leading to a decrease in inflationary pressures.

With an Upward-Sloping Aggregate Supply Curve,tight Monetary Policy