Figure 26-11
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in
A) unemployment rates higher than what would occur if no policy had been pursued.
B) inflation higher than what would occur if no policy had been pursued.
C) real GDP lower than what would occur if no policy had been pursued.
D) short-term interest rates higher than what would occur if no policy had been pursued.

Question

Figure 26-11 
-Refer to Figure 26-11. In the dynamic model of AD-AS in the figure above, the economy is at point A in year 1 and is expected to go to point B in year 2, and the Federal Reserve pursues policy. This will result in
A) unemployment rates higher than what would occur if no policy had been pursued. 
B) inflation higher than what would occur if no policy had been pursued. 
C) real GDP lower than what would occur if no policy had been pursued. 
D) short-term interest rates higher than what would occur if no policy had been pursued.

Quizplus · Accepted Answer

If the Federal Reserve pursues an expansionary policy to move the economy from point A to point B, it will likely increase the money supply, leading to higher inflation than if no policy had been pursued.

Figure 26-11 -Refer to Figure 26-11. in the Dynamic Model of AD-AS