Which of the following statements is CORRECT?
A)If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks,then policy that stabilizes inflation will also stabilize economic activity,even in the short run.
B)If temporary supply shocks are more common,then a central bank must choose between stabilizing inflation and stabilizing output in the short run.
C)Stabilizing economic activity in response to a temporary supply shock results in a larger deviation of inflation from the inflation target rather than a stabilization of inflation.
D)all of the above.

Question

Quizplus · Accepted Answer

A) Aggregate demand shocks or permanent aggregate supply shocks affecting the economy can be addressed by policies that stabilize inflation, which in turn stabilizes economic activity even in the short run. B) When temporary supply shocks are prevalent, central banks face a trade-off between stabilizing inflation and stabilizing output in the short run, as these goals can become conflicting. C) Responding to temporary supply shocks by stabilizing economic activity can lead to a larger deviation in inflation from its target, indicating a prioritization of output stabilization over inflation control. All these statements correctly describe the implications of different types of shocks on economic policy objectives.

Which of the Following Statements Is CORRECT