If the Fed responds to an increase in aggregate demand by increasing the quantity of money,
A) money wage rates will fall to reduce the unemployment.
B) output will begin to decrease more rapidly than otherwise.
C) there will be continued inflation.
D) nothing happens because aggregate demand had already increased.

Question

Quizplus · Accepted Answer

Increasing the quantity of money in response to an increase in aggregate demand would fuel inflationary pressures, leading to continued inflation.

If the Fed Responds to an Increase in Aggregate Demand