An Unanticipated Shift to a More Restrictive Monetary Policy by the Fed

Multiple Choice

An unanticipated shift to a more restrictive monetary policy by the Fed will

A) increase real interest rates and, thereby, reduce investment, current consumption, and aggregate demand.
B) reduce real interest rates, leading to a depreciation of the dollar and an expansion in net exports and aggregate demand.
C) increase real interest rates, leading to higher asset prices that will stimulate aggregate demand.
D) reduce real interest rates and, thereby, stimulate investment, current consumption, and aggregate demand.