If the central bank responds to repeated negative supply shocks with monetary validations, the economy will be faced with

Question

Quizplus · Accepted Answer

By responding to negative supply shocks with monetary validations, the central bank increases the money supply, which can lead to continuous inflation. The increase in the money supply allows consumers to bid up the prices of goods and services, causing prices to rise over time.

If the Central Bank Responds to Repeated Negative Supply Shocks