If the public believes that the commitment to a nominal anchor is not credible,the effect of a negative aggregate demand shock is for ________.
A)short-run aggregate supply to shift down
B)short-run aggregate supply to remain unchanged
C)short-run aggregate supply to shift up
D)inflation,but not economic activity,to decrease

Question

Quizplus · Accepted Answer

If the commitment to a nominal anchor is not credible, inflation expectations may rise, causing the short-run aggregate supply to shift up as firms increase prices in anticipation of higher future costs.

If the Public Believes That the Commitment to a Nominal