If a Negative Real Shock Affects the Economy's Long-Run Potential

question 242

Multiple Choice

If a negative real shock affects the economy's long-run potential growth rate and the Fed responds by lowering the money supply growth rate,then the economy will experience:

• A) too little real growth and low inflation.
• B) too little real growth and high inflation.
• C) high real growth and low inflation.
• D) high real growth and high inflation.

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Definitions:

Mega-

A prefix in medical terminology indicating enlargement or one million units.

Sym-

A prefix in medical terms denoting "together" or "with," used to describe conditions that involve multiple factors or elements acting together.

An-

Prefix indicating without or lack of.

Bifurcation

The division of something into two branches or parts, often referred to in a biological context such as blood vessels or airways.