It is important to note that, when confronted with a supply shock, a central bank such as the Fed has two choices. Which of the below is ONE of these choices?

Question

Quizplus · Accepted Answer

The Fed can refuse to accommodate the higher price levels that follow the shock by matching them with an increase in the money supply. By doing so, the Fed would be aiming to prevent inflation from spiraling out of control and maintain price stability. Shooting for zero or low unemployment may not be feasible in the face of a supply shock, as it may lead to even higher inflation and exacerbate the problem. Similarly, aiming for high unemployment would be counterproductive to the Fed's mandate of promoting maximum employment.

It Is Important to Note That, When Confronted with a Supply