Suppose the economy currently has an inflationary gap. The Fed engages in contractionary monetary policy. The impact of contractionary monetary policy will be to

A. decrease aggregate demand, decrease prices, and increase real GDP.
B. decrease aggregate demand, decrease prices, and decrease real GDP.
C. increase short-run aggregate supply, decrease in prices and decrease in real GDP.
D. increase short-run aggregate supply, decrease prices and increase real GDP.


Answer: B

Economics

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