There Is an Adverse Supply Shock

question 18

Multiple Choice

There is an adverse supply shock.In response the Federal Reserve pursues an expansionary monetary policy.Taking into account both the shock and the Federal Reserve's policy,which of the following are we sure of?

• A)unemployment will be higher
• B)unemployment will be lower
• C)inflation will be higher
• D)inflation will be lower

---

Definitions:

Interest Rates

The amount of a loan that is incurred as interest by the borrower, customarily specified as an annual percentage of the loan in question's remaining value.

Invest

Diverting money with the hopes of producing an income or realizing a profit.

Crowding Out

The phenomenon where increased government spending leads to a reduction in private sector investment or spending due to higher interest rates or other factors.

Budget Deficit

A budget deficit occurs when a government's expenditures exceed its revenues during a specific period, leading to the need for borrowing or using saved reserves.