If the Fed responds to repeated decreases in the short- run aggregate supply with repeated increases in the quantity of money, the economy will be faced with
A) alternating periods of inflation and deflation.
B) continuous inflation.
C) steady decreases in real GDP.
D) a one- time increase in prices.

Question

Quizplus · Accepted Answer

By repeatedly increasing the quantity of money in response to decreases in short-run aggregate supply, the Fed will be continuously fueling inflation in the economy. This is because an increase in the money supply reduces the purchasing power of each unit of money, leading to higher prices for goods and services. As prices continue to rise, inflation becomes a persistent problem.

If the Fed Responds to Repeated Decreases in the Short-