Assume the economy is at full employment.If the Fed accommodates an increase in oil prices by expansionary monetary policy, the most likely long-run effect will be that

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When the Fed adopts an expansionary monetary policy to counteract an increase in oil prices, it injects more money into the economy. While this might temporarily support economic activity and prevent unemployment from rising, the increase in the money supply is likely to lead to higher inflation in the long run. Thus, unemployment would remain about the same, but prices would increase.

Assume the Economy Is at Full Employment