The Economy Is Growing at the Solow Growth Rate of 3

Multiple Choice

The economy is growing at the Solow growth rate of 3 percent with an inflation rate of 4 percent. If a positive aggregate demand shock occurs and the Fed responds by decreasing the money supply but fails to offset the aggregate demand shock, then in the short run

A) the real growth rate will be 3 percent, and the inflation rate will be 4 percent.
B) the real growth rate will be lower than 3 percent, and the inflation rate will be lower than 4 percent.
C) the real growth rate will be higher than 3 percent and the inflation rate will be lower than 4 percent.
D) the real growth rate will be higher than 3 percent and the inflation rate will be higher than 4 percent.