If the central bank responds to a single negative supply shock with monetary validation,we can expect an increase in

Question

Quizplus · Accepted Answer

If the central bank responds to a negative supply shock with monetary validation, it will result in an increase in the money supply. However, this will also lead to an increase in costs and the price level. As a result, the output gap will remain the same, and there may be some increase in unemployment as well. Therefore, the best choice is D, which includes an increase in costs, the price level, and the money supply.

If the Central Bank Responds to a Single Negative Supply