If the Fed responds to an initial increase in aggregate demand by increasing the quantity of money,
A) there is the risk of continued inflation.
B) there will be no inflationary gap.
C) money wages will fall to reduce the unemployment.
D) real GDP will begin to decrease more rapidly than if the quantity of money had remained constant.

Question

Quizplus · Accepted Answer

If the Fed responds to an initial increase in aggregate demand by increasing the quantity of money, there is the risk of continued inflation. This is because an increase in the quantity of money will lead to an increase in spending and demand, which can drive up prices. If this inflationary pressure is not controlled, it can lead to sustained inflation.

If the Fed Responds to an Initial Increase in Aggregate