When they are confronted with an adverse shock to aggregate supply,policymakers face a difficult choice in that
A)if they contract aggregate demand,the unemployment rate will increase further.
B)if they expand aggregate demand,the inflation rate will increase further.
C)they face a less favorable trade-off between inflation and unemployment than they did before the shock.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Policymakers face a difficult choice because contracting aggregate demand can increase unemployment (A), expanding it can increase inflation (B), and the trade-off between inflation and unemployment becomes less favorable (C).

When They Are Confronted with an Adverse Shock to Aggregate