Why Is Monetary Policy Not Fully Effective in Combating a Negative

question 12

Multiple Choice

Why is monetary policy not fully effective in combating a negative supply shock?

• A) The Fed has no tools that stimulate an economy after a negative supply shock.
• B) When countering a negative supply shock,Fed action will cause deflation.
• C) When countering a negative supply shock,Fed action will raise unemployment.
• D) When countering a negative supply shock,Fed action will raise inflation.

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