Suppose That Inflation Is at the Target Rate and Output

question 98

Multiple Choice

Suppose that inflation is at the target rate and output has fallen substantially below potential output.A central bank with a primary objective of price stability should ________.

• A)do nothing,because inflation cannot rise when unemployment is high
• B)ease monetary policy,to avoid a decrease in the inflation rate
• C)do nothing,because stabilizing economic activity is not a primary objective
• D)ease monetary policy,because avoiding high unemployment is more important than avoiding high inflation
• E)none of the above