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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Definitions:

Alkane

A saturated hydrocarbon with single bonds only, having the general molecular formula CnH2n+2, where n is the number of carbon atoms.

Molecular Formula

A notation showing the types and numbers of atoms in a molecule, without indicating their arrangement.

Ethyl

A functional group or moiety consisting of two carbon atoms and five hydrogen atoms (–C2H5), often derived from ethanol.

Dimethyldodecane

An organic compound structured as a dodecane backbone with two methyl groups attached, used in various chemical contexts.