If the Fed reacts to a negative real shock by raising aggregate demand,it can keep the inflation rate stable.

Question

Quizplus · Accepted Answer

If the Fed reacts to a negative real shock by increasing aggregate demand, it can lead to higher inflation rates. This is because the shock could be due to factors such as higher input costs, which would cause firms to raise prices in response to the increased demand. Therefore, if the Fed wants to keep inflation stable, it may need to make other policy adjustments in addition to increasing aggregate demand.

If the Fed Reacts to a Negative Real Shock by Raising