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

question 15

Multiple Choice

Suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target.

• A) If the commitment is credible, the public's expected inflation will remain unchanged.
• B) Credible policy produces better outcomes on both inflation and output in the short run.
• C) Policies that are not credible produce worse economic contraction.
• D) all of the above.
• E) A and C only.

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