If the combination r = 5% and Y = $100 billion is on the Fed rule line, we know that the combination r = 7% and Y = $100 billion would represent
A) the Fed rule shifting to the right.
B) the Fed rule shifting to the left.
C) a movement up the Fed rule.
D) a movement down the Fed rule.

Question

Quizplus · Accepted Answer

According to the Fed rule, as Y increases, r should also increase. Therefore, if Y remains constant at $100 billion and r increases from 5% to 7%, the Fed rule line would shift to the left, indicating that monetary policy should be tightened.

If the Combination R = 5% and Y = $100