Suppose That the Federal Reserve Is Expected to Expand the Quantity

question 216

Multiple Choice

Suppose that the Federal Reserve is expected to expand the quantity of money by 5 percent but ends up expanding it by only 2 percent. If the new Keynesian theory is correct, which of the following describes the effect on the economy?

• A) Inflation will be higher than expected.
• B) Workers' decisions about when to work will be affected.
• C) A recession will ensue.
• D) The economy experience a boom because the quantity of money is still growing.

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