A surprise reduction in the growth rate of the money supply and aggregate demand

Question

Quizplus · Accepted Answer

A surprise reduction in the growth rate of the money supply and aggregate demand would decrease inflation but at the cost of a recession. This is because the reduction in the growth rate of the money supply and aggregate demand will lead to a decrease in spending and investment, which results in a decrease in output and an increase in unemployment. The decrease in output and increase in unemployment leads to a recession. However, the decrease in spending will also decrease inflation because there is less demand for goods and services, so businesses will lower their prices to stay competitive.

A Surprise Reduction in the Growth Rate of the Money