Why do negative supply shocks present such a difficulty for the Federal Reserve?
A) the Fed can choose to fight the rising price level,but this will result in lower unemployment.
B) the Fed can choose to fight the rising unemployment,but this will result in an even lower price level.
C) the Fed can choose to fight the falling unemployment,but this will result in an even higher price level.
D) the Fed can choose to fight the rising unemployment,but this will result in an even higher price level.
E) the Fed can choose to fight the rising unemployment,but this will result in higher taxes.

Question

Quizplus · Accepted Answer

Negative supply shocks lead to higher prices and lower output. If the Fed tries to combat rising unemployment by stimulating the economy, it risks increasing inflation further.

Why Do Negative Supply Shocks Present Such a Difficulty for the Federal