In the short run,if the Federal Reserve responds to a negative real shock with an increase in money supply growth,the inflation rate will increase because of:
A) the real shock only.
B) the increase in money growth only.
C) both the real shock and the increase in money growth.
D) some reason other than the real shock and the increase in money growth.

Question

Quizplus · Accepted Answer

An increase in money supply growth increases the aggregate demand, which leads to higher prices and an increase in inflation. Additionally, a negative real shock, such as a decrease in productivity or an increase in production costs, reduces the economy's supply capacity, leading to higher prices and inflation. Therefore, the increase in money supply growth and the negative real shock together contribute to the increase in inflation.

In the Short Run,if the Federal Reserve Responds to a Negative