What Would a Central Bank Need to Do to Reverse

question 52

Essay

What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?

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Definitions:

Price Level

A measure of the average prices of goods and services in an economy over a period of time, often used to assess inflation.

Value Added

The increase in worth of a product or service as a result of a particular process, excluding the cost of initial raw materials.

Intermediate Goods

Products used as inputs in the production of final goods, such as raw materials or components, not sold directly to end consumers.

Market Value

The prevailing rate at which a good or service is available for purchase or sale in the open market.