Suppose That the Federal Reserve Is Expected to Expand the Quantity

question 229

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