Final answer:
True, a restrictive monetary policy can be frustrated if the investment-demand curve shifts to the left, as this could lead to a greater than intended decrease in aggregate demand.
Step-by-step explanation:
The correct answer is option a. True. Contractionary monetary policy aims to reduce the money supply and increase interest rates to discourage borrowing for investment and consumption, which shifts the aggregate demand curve to the left. If the investment-demand curve independently shifts to the left, this action further decreases investment demand, potentially offsetting the intent of the contractionary monetary policy to reduce inflation and lower real GDP. Such a shift in the investment-demand curve could lead to unintended consequences, such as pushing the economy into a recession if aggregate demand decreases more than intended.
A restrictive monetary policy involves reducing the money supply and increasing interest rates to control inflation. However, if the investment-demand curve shifts to the left, it means that the demand for investment decreases. This can be due to factors such as economic downturn, decreased business confidence, or higher borrowing costs. In such a case, a restrictive monetary policy may be frustrated as it cannot effectively control inflation if there is a decrease in investment demand.