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:

Federal Budget Deficit

The federal budget deficit occurs when the government's expenditures exceed its revenues in a given fiscal year, leading to borrowing or use of reserves.

Sherman Antitrust Act

A United States antitrust law that outlaws all contracts, combinations, and conspiracies that unreasonably restrain interstate and foreign trade.

Monopolies

Market structures characterized by a single seller who has exclusive control over the supply of a good or service, often leading to higher prices and reduced competition.

Antitrust Policy

Regulations and laws designed to promote competition and prevent monopolies by restricting business practices that could limit market accessibility.