What is the major cost of slowing down an ongoing inflation?
A) Output must rise above potential.
B) The Fed must sell bonds at lower prices than those at which the bonds were purchased.
C) Output must fall below potential.
D) The Fed must purchase bonds from the public.
E) The Fed must lend additional money to member banks at below-market interest rates.

Question

Quizplus · Accepted Answer

Slowing down an ongoing inflation requires decreasing the aggregate demand, which can be achieved by decreasing spending and output. As a result, the output must fall below potential, leading to unemployment and decreased economic growth.

What Is the Major Cost of Slowing Down an Ongoing