When the Federal Reserve increases the growth rate of the money supply to combat a negative real shock,the growth rate of real GDP:
A) will increase more than the inflation rate.
B) will increase less than the inflation rate.
C) and the inflation rate will both increase by the same amount.
D) and the inflation rate will both decrease by the same amount.

Question

Quizplus · Accepted Answer

When the Federal Reserve increases the money supply to combat a negative real shock, it typically results in higher inflation. The growth rate of real GDP may increase due to the stimulus, but usually, the inflation rate increases more because the supply of money grows faster than the real output.

When the Federal Reserve Increases the Growth Rate of the Money