Starting from Full Employment at the Initial Target Inflation Rate

question 30

Multiple Choice

Starting from full employment at the initial target inflation rate, if there is a favorable inflation shock, then the Federal Reserve must _____ in order to return output to potential.

• A)increase the target inflation rate.
• B)decrease the target inflation rate.
• C)maintain the initial target inflation rate.
• D)shift the short-run aggregate supply curve up.

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