Problem: What actions should the Fed take if it believes the economy is about to experience a high rate of inflation? Now, let's assume you are the President of the Fed and you have to make certain decisions in our economy. If the Fed orders a contractionary monetary policy, describe what will happen to the following variables relative to what would have happened without the policy:
- The money supply
- Interest rates
- Investment
- Consumption
- Net Exports
- The aggregate demand curve
- Real GDP
- The price level