The Central Bank of Substantia Uses a Price Level Target

question 3

Multiple Choice

The central bank of Substantia uses a price level target to conduct monetary policy. In the current year, a shock has lowered the inflation rate from 1.5% to 1.0%. Following the shock, firms and households can expect an inflation rate of

• A)1.0%.
• B)1.5%.
• C)2.0%.
• D)2.5%.