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Suppose That an Adverse Supply Shock Causes Downward Pressure on Nominal

Question 188

Multiple Choice

Suppose that an adverse supply shock causes downward pressure on nominal wages and unemployment to increase.If the Fed increases the money supply to stimulate AD and restore output to its previous level (assuming no change in the labor supply) a(n)


A) one time increase in prices will result.
B) inflationary spiral will begin if the real GDP has been reduced.
C) increase in the real GDP will follow.
D) All of the above

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