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) a one-time increase in prices.
D) steady decreases in real GDP.

Question

Quizplus · Accepted Answer

Responding to decreases in short-run aggregate supply with increases in the quantity of money leads to continuous inflation, as more money in the economy leads to higher prices. This is because the increase in the money supply reduces the value of each dollar, making it worth less and causing prices to rise.

If the Fed Responds to Repeated Decreases in the Short-Run