Question

If the Fed responds to a negative real shock by increasing the money supply, the rate of inflation will be: Please choose the correct answer from the following choices, and then select the submit answer button. Answer choices higher than if the negative real shock had not occurred. higher than if the Fed did nothing. lower than if the negative real shock had not occurred. lower than if the Fed did nothing.

Answer 1

If the Fed responds to a negative real shock by increasing the money supply, the rate of inflation will be B. higher than if the Fed did nothing.

What is the Fed's response to a negative real shock?

There are two ways the Fed can respond to a negative real shock in exercising its discretionary policy powers.

The Fed can choose to decrease the money supply and reduce aggregate demand, which reduces inflation and economic growth.

Alternatively, the Fed can increase the money supply, thereby increasing real growth and aggregate demand.

Thus, if the Fed responds to a negative real shock by increasing the money supply, the rate of inflation will be B. higher than if the Fed did nothing.

Learn more about negative real shocks at https://brainly.com/question/17101936

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