If the Fed reduces $\vec { M }$ to fight inflation after a negative real shock,which of the following should occur?
A) higher inflation
B) lower real growth
C) higher real growth
D) no change in real growth

Question

Quizplus · Accepted Answer

If the Fed reduces the money supply ($\vec{M}$), it would decrease aggregate demand which would likely lead to lower real growth. This is because less money in the economy would mean less spending by individuals and businesses. In addition, reducing the money supply would also make borrowing more expensive and less accessible, which could further discourage spending and investment.

If the Fed Reduces M⃗\vec { M }M To Fight Inflation After a Negative Real Shock,which of the Inflation

If the Fed Reduces $\vec { M }$ To Fight Inflation After a Negative Real Shock,which of the Inflation