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

question 14

Multiple Choice

Suppose that there is a negative 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 rise.
• C)over time inflation will fall.
• D)all of the above.
• E)both A and C.

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