If the Economy Is Hit by a Negative Real Shock

question 205

Multiple Choice

If the economy is hit by a negative real shock that reduces real GDP growth below its long-run potential rate,which of the following is the appropriate monetary policy to move real GDP growth back to the long-run rate without raising inflation?

• A) Increase the growth rate of the money supply.
• B) Decrease the growth rate of the money supply.
• C) Keep the growth rate of the money supply constant while lowering interest rates.
• D) No monetary policy can achieve this goal.

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