Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP the the short run and ________ in inflation in the short run,everything else held constant.
A)an increase;an increase
B)a decrease;a decrease
C)no change;an increase
D)no change;a decrease

Question

Quizplus · Accepted Answer

An open market purchase of bonds by the Fed will inject cash into the economy, leading to an increase in aggregate demand and a shift in the AD curve to the right. This will result in an increase in both real GDP and inflation in the short run, assuming no offsetting factors. Therefore, choice A is the correct answer.

Suppose the Economy Is Producing at the Natural Rate of Output