If a Positive Inflation Shock Occurs and Monetary Policymakers Do

question 100

Multiple Choice

If a positive inflation shock occurs and monetary policymakers do not change the inflation target:

• A) output will eventually return to potential output and inflation will equal the inflation target.
• B) output will eventually rise above potential output while inflation will equal the inflation target.
• C) output will eventually fall below potential output while inflation will equal the inflation target.
• D) output will eventually return to potential output but inflation will exceed the inflation target.

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Definitions:

Required Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

Expected Growth Rate

The annual rate at which an investment, company revenue, or economy is expected to grow over a future period.

Rate of Return

The achievement or shortfall in value of an investment during an established time, shown as a percentage of the investment’s original financial input.

Dividend

A portion of a company's earnings distributed to shareholders, typically in the form of cash or additional shares.