Tightening monetary policy causes interest rates to _____ and aggregate _____ to _____.
A) fall; demand; increase
B) rise; supply; decrease
C) rise; demand; decrease
D) fall; supply; increase

Question

Quizplus · Accepted Answer

Tightening monetary policy involves actions such as increasing interest rates, reducing the money supply, and decreasing government spending. This causes a decrease in the demand for goods and services, leading to a decrease in aggregate demand. As demand for goods and services decreases, prices also decrease, causing a decrease in aggregate supply. This results in higher interest rates and a decrease in aggregate demand. Therefore, the correct choice is C as it suggests that tightening monetary policy causes interest rates to rise and aggregate demand to decrease.

Tightening Monetary Policy Causes Interest Rates to _____ and Aggregate