If the Fed increases demand in response to an adverse supply shock, then
A)the unemployment will get worse but the inflation better.
B)the unemployment and inflation rates will both fall.
C)the unemployment rate will go down but the inflation rate will go up.
D)nothing will happen because an adverse shock shifts the supply curve.

Question

Quizplus · Accepted Answer

Increasing demand in response to an adverse supply shock may reduce unemployment by stimulating economic growth, but it may also increase inflation because there are shortages in the supply of goods and services. Therefore, the unemployment rate may go down but the inflation rate will go up.

If the Fed Increases Demand in Response to an Adverse