In response to an adverse supply shock,suppose the Fed implements accommodating monetary policy.Which of the following occurs as a result of the accommodating monetary policy?

Question

Quizplus · Accepted Answer

Accommodating monetary policy involves the Fed increasing the money supply and lowering interest rates. This leads to an increase in aggregate demand and a shift to the right in the short run. This results in an increase in inflation due to the adverse supply shock, but unemployment decreases due to the increase in aggregate demand. Therefore, option D is the correct answer.

In Response to an Adverse Supply Shock,suppose the Fed Implements