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

question 52

Multiple Choice

Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not 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 back down to the inflation target
• D) all of the above
• E) A and B only

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Definitions:

Balance Of Trade

The difference between a country's exports and imports of goods and services over a certain period.

Federal Budget

The government's estimate of revenue and expenditure for a fiscal year, outlining financial priorities and resource allocations.

Economic Theory

A set of principles and models that explain how economies operate and how economic agents interact, encompassing a wide range of topics like supply and demand, inflation, and economic growth.

Assumption

A basic premise or belief that is accepted as true without proof, often used as a starting point for further argument or analysis.