Suppose That There Is a Positive Aggregate Demand Shock and the Central

question 25

Multiple Choice

Suppose that there is a positive aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible,then

• A)the public's expected inflation will remain unchanged.
• B)the short-run aggregate supply curve will not shift.
• C)over time inflation will fall back down to the inflation target.
• D)all of the above.
• E)both A and B.

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Definitions:

Stock Variable

A quantity measured at one specific time, representing a certain amount accumulated up to that time.

Money Supply

The total amount of monetary assets available in an economy at a specific time.

Price Level

A composite measure reflecting the prices of all goods and services in the economy relative to prices in a base year.

Consumer Spending

The total expenditure by households on goods and services within a certain period of time, a primary engine of economic activity.