If The Central bank tries to keep the interest rate constant when the economy is operating on the steep part of the AS curve, _________ will occur?
Correct answer: A. a hyperinflation
- A. a hyperinflation
- B. a depression
- C. stagflation
- D. a recession
Explanation
On the steep part of the aggregate-supply curve, maintaining a constant interest rate may require the central bank to keep expanding the money supply as prices rise. Persistent monetary expansion can produce hyperinflation.
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