Starting from Full Employment at the Initial Target Inflation Rate

question 40

Multiple Choice

Starting from full employment at the initial target inflation rate, if there is an adverse inflation shock, then the Federal Reserve must _____ in order to keep inflation at the initial target level.

• 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:

Accrued Liabilities

Expenses that have been incurred but not yet paid, recognized on the balance sheet for financial reporting purposes.

Quality Of Income Ratio

A ratio that indicates the proportion of income that has been realized in cash and thus gives an idea of the company's cash flow condition.

Accrual Of Revenue

The recognition of income by a business at the time the revenue is earned, not necessarily when cash is received.

Cash Dividend

A payment made by a company out of its profits to shareholders in the form of cash.