Question

In the case of a negative shock to aggregate demand, the central bank should: increase the rate of growth of the money supply to restore spending growth. decrease the rate of growth of the money supply to control inflation. do nothing. decrease the rate of growth of the price level to keep real growth high.

Answer 1

Answer: increase the rate of growth of the money supply to restore spending growth.

Explanation:an increase in money supply growth. If the Federal Reserve offsets a negative shock to aggregate demand with increased money growth: both inflation and real GDP growth will rise.