Which of the Following Statements Is CORRECT

question 52

Multiple Choice

Which of the following statements is CORRECT?

• A)If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks,then policy that stabilizes inflation will also stabilize economic activity,even in the short run.
• B)If temporary supply shocks are more common,then a central bank must choose between stabilizing inflation and stabilizing output in the short run.
• C)Stabilizing economic activity in response to a temporary supply shock results in a larger deviation of inflation from the inflation target rather than a stabilization of inflation.
• D)all of the above.

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Definitions:

Perfect Information

A condition in decision-making where all relevant information is known to the decision-maker, including outcomes, events, and consequences for every choice.

Expected Payoff

The anticipated return or outcome of an investment, decision, or action, considering all possible results weighted by their probabilities.

Expected Opportunity Loss

The anticipated loss in value for choosing an option that is not the best, quantified as the difference between the best expected outcome and the expected outcome of the chosen option.

Expected Monetary Value

The weighted average of all possible outcomes of a decision, where each outcome is weighted by its probability of occurrence.