If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply, then in the short run the Federal Reserve's action will raise inflation and lower unemployment.

Question

Quizplus · Accepted Answer

Increasing the money supply in response to an adverse supply shock can lower unemployment in the short run due to the stimulative effect on the economy, but it also raises inflation because more money chases the same or fewer goods and services.

If There Is an Adverse Supply Shock and the Federal