Because of the lag of the effects of changes in monetary policy and the failure of forecasters to anticipate supply-side shocks as well as changes in money demand or velocity,activist policy changes have tended at times during the mid-1970s to
A)accelerate inflation during expansions.
B)increase unemployment during recessions.
C)accelerate inflation and increased unemployment.
D)dampen inflation and decrease unemployment.

Question

Quizplus · Accepted Answer

Activist policy changes, which attempt to manipulate monetary policy to stabilize economic activity, tend to have a delayed effect and can be difficult to predict. As a result, policy changes during the mid-1970s often had unintended consequences of both accelerating inflation and increasing unemployment. This is known as stagflation, where high inflation coexists with stagnant or sluggish economic growth. Therefore, the best choice is C, which reflects the combined negative impact of activist policy changes during this time period.

Because of the Lag of the Effects of Changes in Monetary