Refer to the graph. Ongoing inﬂation would occur if the Fed
A) increased the money supply, causing AD to shift faster than technological progress shifts AS.
B) increased the money supply, causing AD to shift slower than technological progress shifts AS.
C) increased the money supply, causing AD to shift as fast as technological progress shifts AS.
D) did not increase the money supply while technological progress is shifting AS.

Question

Refer to the graph. Ongoing inﬂation would occur if the Fed
A) increased the money supply, causing AD to shift faster than technological progress shifts AS. 
B) increased the money supply, causing AD to shift slower than technological progress shifts AS. 
C) increased the money supply, causing AD to shift as fast as technological progress shifts AS. 
D) did not increase the money supply while technological progress is shifting AS.

Quizplus · Accepted Answer

According to the graph, the intersection of AD and AS is currently at a point where there is neither inflation nor deflation. If the Fed increases the money supply, it would cause AD to shift to the right, and if this shift occurs faster than the rate at which technological progress shifts AS, then ongoing inflation would occur. Therefore, option A is the correct answer.

Refer to the Graph