Question

g The Federal Reserve can lower short-run output by Group of answer choices lowering the real interest rate. increasing the money supply. decreasing the money supply. lowering the nominal interest rate. None of these answers is correct

Answer 1

Answer: Decreasing the money supply

Explanation:

When the Fed reduces money supply, it will remove the amount of excess money that people have to spend in the economy. This will lead to prices reducing because people no longer have a lot of money to spend on products therefore they will demand less goods. This will lead to the Aggregate demand curve shifting to the left. The new intersection with the Aggregate Supply curve will be at a point where prices will be lower and less quantity will be demanded which will signify a drop in the short-run output of the economy.