Suppose short-run aggregate supply shifts to the left because of a decrease in the supply of steel. The Federal Reserve fights the resulting recession with expansionary monetary policy. This will
A) increase interest rates.
B) decrease inflation.
C) cause inflation.
D) increase unemployment.

Question

Quizplus · Accepted Answer

Expansionary monetary policy involves increasing the money supply, which can lead to increased demand and potential inflationary pressures. Additionally, the decrease in short-run aggregate supply due to the decrease in steel supply may further contribute to inflation if there is still high demand for goods and services.

Suppose Short-Run Aggregate Supply Shifts to the Left Because of a Decrease