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In: Economics

If the Federal Reserve raises its target inflation rate, the monetary policy reaction function _____ and...

If the Federal Reserve raises its target inflation rate, the monetary policy reaction function _____ and the aggregate demand curve _____. Multiple Choice shifts upward to the left; shifts to the right shifts downward to the right; shifts to the right shifts upward to the left; shifts to the left shifts downward to the right; shifts to the left

Solutions

Expert Solution

If the Federal Reserve raises its target inflation rate, the monetary policy reaction function Shift downward to the right and the aggregate demand curve Shift right.

Reason- Monetary policy reaction curve shifts rightwards leads to fall in real interest rate. Investment rises, aggregate demand rises hence AD curve shifts right and inflation rises.

Rahul Sunny answered 1 year ago
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