Ongoing inflation means the Fed must respond to
A) an upward-shifting AS curve
B) a downward-shifting AS curve
C) changing interest rate targets
D) a depression
E) a lower real interest rate

Question

Quizplus · Accepted Answer

Ongoing inflation is a general increase in prices over time. This means that the aggregate supply (AS) curve is shifting upward, indicating an increase in production costs. To combat this, the Fed must respond by implementing contractionary monetary policy to reduce aggregate demand (AD) and shift it leftward, slowing down economic growth and reducing demand-pull inflation. This can be achieved by increasing interest rates, reducing the money supply, and decreasing government spending.

Ongoing Inflation Means the Fed Must Respond to