Suppose That There Is a Negative Aggregate Demand Shock and the Central

question 14

Multiple Choice

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible,then

• A)the public's expected inflation will remain unchanged.
• B)the short-run aggregate supply curve will rise.
• C)over time inflation will fall.
• D)all of the above.
• E)both A and C.

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Definitions:

Cognitive Dissonance

The mental discomfort or psychological stress experienced by an individual who holds two or more contradictory beliefs, ideas, or values at the same time.

Psychological Discomfort

A state of emotional distress or unease, often arising from situations that challenge one's existing beliefs or perceptions.

Inconsistent Thoughts

Cognitive states or patterns that lack coherence, often characterized by conflicting ideas or beliefs that do not align logically.

Attribution Theory

A theory focused on how people interpret and understand causes behind others' behavior, and how this affects their own behavior and thinking.