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

question 10

Multiple Choice

Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. But if the commitment is not credible, then ________.

• A) the public's expected inflation will remain unchanged
• B) the short-run aggregate supply curve will rise
• C) economic contraction will be worse
• D) all of the above
• E) B and C only

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Definitions:

Uncertain Future Events

Events whose occurrence and impact cannot be predicted with certainty, often requiring risk management and contingency planning.

Contingent Liability

A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity.

AASB 137

refers to an Australian accounting standard concerning the recognition and measurement of provisions, contingent liabilities, and contingent assets.

Financial Effect

The impact of financial transactions and events on the financial statements of an organization, altering its financial condition or performance.