If the Fed Responds to Repeated Decreases in the Short-Run

question 109

Multiple Choice

If the Fed responds to repeated decreases in the short-run aggregate supply with repeated increases in the quantity of money, the economy will be faced with

• A) alternating periods of inflation and deflation.
• B) continuous inflation.
• C) a one-time increase in prices.
• D) steady decreases in real GDP.

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Definitions:

Inflation

The tempo at which prices for general goods and services ascend, leading to a depreciation in money's buying strength.

Government

The organization or system through which a society or community is ruled, often responsible for creating and enforcing laws, policies, and regulations.

Hyperinflations

Extremely high and typically accelerating inflation rates, leading to a rapid erosion of the real value of local currency.

Inflation Tax

The revenue the government raises by creating money