Which of the following is likely to occur when inﬂation moves above the target rate of inﬂation in an economy?
A) Firms will stop hiring more workers.
B) The central bank will raise interest rates.
C) The level of real wages in the economy will increase.
D) The short-run output level will fall.

Question

Quizplus · Accepted Answer

When inflation exceeds the target rate, central banks typically raise interest rates to cool down the economy and bring inflation back to the target level. Higher interest rates make borrowing more expensive, which can reduce spending and investment, helping to lower inflation.

Which of the Following Is Likely to Occur When Inﬂation