When hit with a negative real shock,the Fed must pick a policy that chooses between:
A) a growth rate that's too low and an unemployment rate that's too high.
B) a growth rate that's too low and an inflation rate that's too high.
C) a growth rate that's too high and wages that are too low.
D) a growth rate that's too high and a savings rate that's too low.

Question

Quizplus · Accepted Answer

When faced with a negative real shock, the Federal Reserve (Fed) often has to choose between stimulating the economy to avoid high unemployment and slow growth, and tightening monetary policy to control inflation. This trade-off can result in a policy choice that either allows for a growth rate that's too low or an inflation rate that's too high.

When Hit with a Negative Real Shock,the Fed Must Pick