If the Federal Reserve offsets a negative shock to aggregate demand with increased money growth:
A) inflation will rise,but real GDP growth will remain unchanged.
B) inflation will fall,but real GDP growth will remain unchanged.
C) both inflation and real GDP growth will rise.
D) both inflation and real GDP growth will fall.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases money growth to offset a negative shock to aggregate demand, it stimulates economic activity, leading to both higher inflation and higher real GDP growth. This is because the increased money supply lowers interest rates, encouraging borrowing and spending, which in turn boosts economic output and can lead to higher prices.

If the Federal Reserve Offsets a Negative Shock to Aggregate