If the Fed accommodates an adverse supply shock, output falls ______ and prices rise ______.
A) less; more
B) less; less
C) more; less
D) more; more

Question

Quizplus · Accepted Answer

When the Fed accommodates an adverse supply shock by increasing the money supply, output falls less because of the stimulated demand, but prices rise more due to the increased money chasing the same or fewer goods and services.

If the Fed Accommodates an Adverse Supply Shock, Output Falls