A shock increases the costs of production.Given the effects of this shock,if the central bank wants to return the unemployment rate towards its previous level it would
A)increase the rate at which the money supply increases.This will also move inflation closer to its previous rate..
B)increase the rate at which the money supply increases.However,this will make inflation higher than its previous rate
C)decrease the rate at which the money supply increases.This will also move inflation closer to its original rate
D)decrease the rate at which the money supply increases.However,this will make higher than its previous rate.

Question

Quizplus · Accepted Answer

Increasing the money supply can reduce unemployment by stimulating economic activity, but it can also lead to higher inflation.

A Shock Increases the Costs of Production