If the Federal Reserve raises interest rates in an autonomous tightening ________.
A)the MP curve shifts up,raising the real interest for any given level of the inflation rate
B)there is an upward movement along the IS curve
C)the AD curve shifts to the left
D)all of the above
E)none of the above

Question

Quizplus · Accepted Answer

When the Federal Reserve raises interest rates in an autonomous tightening, it leads to a shift up in the MP curve, which increases the real interest rates for any given level of inflation rate (A). This, in turn, causes an upward movement along the IS curve (B) and reduces the demand for investment and consumption goods, leading to a leftward shift in the AD curve (C). Hence, all the options - A, B, and C are true, which leads to the answer D - all of the above.

If the Federal Reserve Raises Interest Rates in an Autonomous