Starting from Full Employment at the Initial Target Inflation Rate

question 30

Multiple Choice

Starting from full employment at the initial target inflation rate, if there is a favorable inflation shock, then the Federal Reserve must _____ in order to return output to potential.

• A)increase the target inflation rate.
• B)decrease the target inflation rate.
• C)maintain the initial target inflation rate.
• D)shift the short-run aggregate supply curve up.

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Definitions:

Tradeoff

The balance achieved between two desirable but incompatible features; a compromise.

Prosocial Behavior

Actions intended to benefit others, including helping, sharing, donating, co-operating, and volunteering.

Less Prone

Having a reduced likelihood or susceptibility to something.

Prisoner's Dilemma Game

A concept in game theory where two individuals acting in their own self-interest do not produce the optimal outcome for either party.