A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate toward its previous level it would
A)increase the rate at which the money supply increases.This will also move inflation closer to its previous rate.
B)increase the rate at which the money supply increases.However, this will make inflation higher than its previous rate.
C)decrease the rate at which the money supply increases.This will also move inflation closer to its original rate.
D)decrease the rate at which the money supply increases.However, this will make higher than its previous rate.

Question

Quizplus · Accepted Answer

Increasing the money supply can stimulate economic activity, thereby reducing unemployment. However, it can also lead to higher inflation, especially if the increase in money supply is not matched by an increase in the production of goods and services.

A Shock Increases the Costs of Production