Starting from Full Employment at the Initial Target Inflation Rate

question 12

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 avoid a recession.

• 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:

Moderate Arousal

An optimal level of mental or physical activation that can enhance performance or learning according to arousal theory.

Relaxation Exercises

Techniques or activities designed to reduce stress and induce a state of calm.

Yerkes-Dodson Law

A theory suggesting there is an optimal level of arousal for the best performance of a task: too little or too much arousal can decrease performance.

Physical Arousal

The physiological state of being alert and engaged, often including increased heart rate, blood pressure, and sensory alertness.