If the RBA responds to an initial increase in aggregate demand by increasing the quantity of money,
A)real GDP will begin to decrease more rapidly than if the quantity of money had remained constant.
B)money wages will fall to reduce unemployment.
C)there will be no inflationary gap.
D)there is a risk of continued inflation.

Question

Quizplus · Accepted Answer

Increasing the quantity of money in response to an increase in aggregate demand can lead to continued inflation, as more money in the economy can further increase demand and push prices up.

If the RBA Responds to an Initial Increase in Aggregate