When the Federal Reserve raises the growth rate of the money supply to a permanently higher level,this produces ________ in real GDP and ________ in the inflation rate.

Question

Quizplus · Accepted Answer

When the Federal Reserve raises the growth rate of the money supply to a permanently higher level, it initially stimulates economic activity, leading to a temporary increase in real GDP. However, as prices adjust, the real effects fade, and the economy returns to its original level of real GDP, but with a permanently higher inflation rate.

When the Federal Reserve Raises the Growth Rate of the Money