Question

If the Fed reacts to a series of negative real shocks by raising money growth every...

If the Fed reacts to a series of negative real shocks by raising money growth every time:
the inflation rate will increase over time.
deflation will occur.
the inflation rate will remain unchanged.
the inflation rate will decrease over time.
A decrease in consumers' confidence in banks would lead to _____ in the velocity of money and result in the AD curve shifting to the _____.
a decrease; left
an increase; right
a decrease; right
an increase; left
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Homework Answers

Answer #1

1-The correct option is ( a), that is the inflation rate will increase over time.

Money growth has two components the first is output growth and second is inflation growth.

Log(M)= Log(Y)+ Log(P)

2-The correct option is (a) that is a decrease , left

Explanation-

A decrease in consumer confidence would lead to decrease in marginal propensity to consume that mean consumer will more aware about future and will save money for future thus velocity of money decrease and if save more the consumption decrease and AD curve will Shift leftward. because consumption is a patp of AD.

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