If the Fed Responds to an Initial Increase in Aggregate

question 37

Multiple Choice

If the Fed responds to an initial increase in aggregate demand by increasing the quantity of money

• A) there will be no inflationary gap.
• B) real GDP will begin to decrease more rapidly than if the quantity of money had remained constant.
• C) money wages will fall to reduce unemployment.
• D) there is the risk of continued inflation.

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Definitions:

Aggregate Supply

The aggregate amount of products and services that businesses intend to offer for sale in the market within a given timeframe.

Economic Fluctuations

Variations in the level of economic activity in an economy over a period of time, including phases of expansion and contraction.

Business Cycle

The fluctuations in economic activity that an economy experiences over a period of time, characterized by periods of expansion (growth) and contraction (recession).

Recessions

Intervals of provisional economic contraction, during which commerce and industry slow down, often indicated by a dip in GDP across two sequential quarters.