Refer to the graph above. Ongoing inflation would occur if the Fed:
A) Increases the money supply causing AD to shift faster than technological progress shifts AS
B) Increases the money supply causing AD to shift slower than technological progress shifts AS
C) Increases the money supply causing AD to shift as fast as technological progress shifts AS
D) Does not increase the money supply while technological progress is shifting AS

Question

Refer to the graph above. Ongoing inflation would occur if the Fed:
A) Increases the money supply causing AD to shift faster than technological progress shifts AS 
B) Increases the money supply causing AD to shift slower than technological progress shifts AS 
C) Increases the money supply causing AD to shift as fast as technological progress shifts AS 
D) Does not increase the money supply while technological progress is shifting AS

Quizplus · Accepted Answer

Ongoing inflation would occur if the Fed increases the money supply causing AD to shift faster than technological progress shifts AS. This would lead to excess demand in the economy and thus, higher prices.

Refer to the Graph Above