If the Fed Reduces the Money Supply by 5 Percent

Multiple Choice

If the Fed reduces the money supply by 5 percent, then the real interest rate will:

A) rise in both the short run and the long run.
B) rise in the short run but return to its original equilibrium level in the long run.
C) rise in the short run but will fall below its original equilibrium level in the long run.
D) be unaffected in both the short run and the long run.