Answer:
Option (C) is correct.
Step-by-step explanation:
Monetary policy is used by the Fed to control the inflation rate or money supply in an economy and maintain the price stability.
In this case, if it believes that inflation rate is about to increase in the near future then it uses the contractionary monetary policy by increasing the interest rate in an economy which reduces the money supply in an economy. Hence, this will results in more bank reserves and also reduces the investment component of aggregate demand equation which shifts the aggregate demand curve leftwards.
AD = Consumption + Investment + Government spending + Net exports