A Shock Increases the Costs of Production

question 120

Multiple Choice

A shock increases the costs of production. Given the effects of this shock, if the central bank wants to return the unemployment rate toward its previous level it would

• A)increase the rate at which the money supply increases.This will also move inflation closer to its previous rate.
• B)increase the rate at which the money supply increases.However, this will make inflation higher than its previous rate.
• C)decrease the rate at which the money supply increases.This will also move inflation closer to its original rate.
• D)decrease the rate at which the money supply increases.However, this will make higher than its previous rate.