If the Federal Reserve responds to a negative real shock with a decrease in money growth,the Federal Reserve's response will cause inflation to:
A) remain constant.
B) decrease to a lower point than it was initially.
C) increase by less than it otherwise would have.
D) increase by more than it otherwise would have.

Question

Quizplus · Accepted Answer

A decrease in money growth in response to a negative real shock will lead to lower inflation than would have occurred if money growth had not been reduced.

If the Federal Reserve Responds to a Negative Real Shock