Figure 11-3 -Refer to Figure 11-3. By shifting the supply curve from S₁ to S₂, the Fed is attempting to A) expand the economy by increasing interest rates. B) contract the economy by increasing interest rates. C) contract the economy by decreasing interest rates. D) expand the economy by decreasing interest rates.

Question

Quizplus · Accepted Answer

Shifting the supply curve to the left (from S₁ to S₂) means that there is now a lower quantity of money supplied at any given interest rate. This will cause the equilibrium interest rate to increase, which will lead to a contraction of the economy by reducing borrowing and investment. Therefore, the Fed is attempting to contract the economy by increasing interest rates.

Figure 11-3 -Refer to Figure 11-3. by Shifting the Supply Curve from Supply