When monetary authorities accommodate or validate supply-side inflation,they
A) increase the money supply sufficiently to prevent significant increases in unemployment.
B) pursue tight money policies to ensure matching increases in interest rates.
C) ensure that aggregate demand shifts to the left.
D) reduce the price level by an amount equal to the rate of inflation.
E) rely on large budget surpluses to offset their open market purchases.

Question

Quizplus · Accepted Answer

When monetary authorities accommodate or validate supply-side inflation, they increase the money supply to prevent significant increases in unemployment. This is because supply-side inflation occurs due to increased production costs, and if the authorities do not increase money supply, firms will have to cut jobs to compensate for the increased costs, leading to higher unemployment. By increasing money supply, the authorities can ensure that the firms and workers are able to afford the higher prices without reducing employment levels.

When Monetary Authorities Accommodate or Validate Supply-Side Inflation,they