Question

In the late 1970s Federal Reserve Chairman Paul Volcker contracted the money supply to reduce the rate of inflation. One result of this monetary policy was: ANSWER Unselected to increase interest rates which reduced aggregate demand. Unselected to reduce interest rates and stimulate aggregate demand. Unselected higher real output for the U.S. during the next few years. Unselected I DON'T KNOW YET

Answer 1

Answer: to increase interest rates which reduced aggregate demand.

Explanation:

Since the money supply was contracted to reduce the rate of inflation, this will lead to increase interest rates which reduced aggregate demand.

In this case as a result of the increase in the interest rate, people will prefer to save their money in the banks and thus will result in less money in circulation which ultimately reduces the demand for goods and services.