To curb inflation, the Fed the quantity of money and, in the short run, the inte

Question

To curb inflation, the Fed the quantity of money and, in the short run, the interest rate a. increases; raises b. increases; lowers c. decreases; raises d. decreases; lowers e. does not change; the Fed raises 15. If the AS and the AD curve intersect at a level of real GDP that exceeds potential GDP, then the appropriate monetary policy is one that the interest rate and aggregate demand. a. raises; increases b. raises; decreases c. lowers; increases d. lowers; decreases e. raises; has no effect on 16. If the Fed raises the interest rate, initially the a. AD curve shifts leftward, decreasing real GDP and increasing the price level. b. AS curve shifts leftward, decreasing real GDP and increasing the price level. c. AD curve shifts rightward, increasing real GDP and the price level. d. AD curve shifts leftward, decreasing real GDP and the price level. e. AS curve shifts rightward, decreasing real GDP and increasing the price level

Explanation / Answer

14. c. decreases; raises.

One way to control inflation is to decrease the supply of money in the market and the tool for doing so is increasing the interest rates, so it becomes difficult to raise money.

15. When this happens, it comes at a cost of rising inflation, so to curb the rising inflation, appropriate monetary policy is one that raises the interest rate and decreases the aggregate demand

16. When FED raises the interest rate, the demand reduces causing AD curve to shift leftward, real GDP reduces and so does the price level (inflation), so option d.

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