The Fed can surely reduce the rightward shift of the AD curve,but
A) stock and bond prices may fall dramatically
B) inflation may rise sharply
C) inflation would change in an unpredictable fashion
D) recession may result
E) unemployment may fall to below the natural rate

Question

Quizplus · Accepted Answer

If the Fed reduces the rightward shift of the AD curve, it would likely result in a decrease in aggregate demand which could lead to a recession. This is because businesses may reduce their output and lay off workers, thereby increasing unemployment rates. Additionally, there may be a decrease in consumer spending which could further contribute to the economic contraction. The other options such as falling stock and bond prices, rising inflation, and unpredictable changes in inflation are possible outcomes, but a recession is the most likely and most significant consequence. Unemployment falling below the natural rate would be an optimistic outcome, but it is not as probable as a recession.

The Fed Can Surely Reduce the Rightward Shift of the AD