Question

a central bank that accommodates (fights) an adverse (negative) aggregate supply shock through expansionary monetary policy a. increases the money supply, making the inflation rate rise. b. increases the money supply, making the inflation rate fall. c. decreases the money supply, making the inflation rate rise. d. decreases the money supply, making the inflation rate fall.

Answer 1

A central bank that accommodates an adverse aggregate supply shock with expansionary monetary policy increases the money supply, lowering interest rates and raising the inflation rate.

Step-by-step explanation:

When a central bank accommodates an adverse aggregate supply shock through expansionary monetary policy, it increases the money supply. This is done with the aim to stimulate the economy by lowering interest rates, which encourages borrowing for investment and consumption, and shifts aggregate demand to the right. This can result in a higher price level, which can in turn lead to a rise in the inflation rate, at least in the short run, while also promoting a higher real GDP.