Question

If the Feds sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short m run, the primary impact of this policy will tend to

Answer 1

Answer: The correct answer is that it will increase the real interest rates.

Explanation: If the Fed sells bonds and, thereby, unexpectedly shifts to a more restrictive monetary policy, in the short run the primary impact of this policy will increase the real interest rate. The real interest rate is the rate that is in effect after allowing for inflation.