In the Short Run,if the Fed Responds to a Negative

question 73

Multiple Choice

In the short run,if the Fed responds to a negative real shock by raising the growth rate of the money supply,inflation will be:

• A) lower than the rate without responding to the negative shock.
• B) higher than the rate without responding to the negative shock.
• C) the same as the rate without responding to the negative shock.
• D) lower or higher than the rate without responding to the negative shock,depending on the size of money supply growth.

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Definitions:

Diminishing Marginal Returns

A principle stating that as additional units of a variable input are added to a fixed input, the additional output from each new unit of input will eventually decrease.

Variable Factors

Elements in production that can change in the short term, such as labor and raw materials, in contrast to fixed factors like capital.

Total Cost

The complete sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Output

the total amount of goods or services produced by a company, industry, or economy in a given period.