If a central bank were required to target inflation at zero,then when there was an unanticipated decrease in aggregate demand the central bank
A)would have to increase the money supply.This would move unemployment closer to the natural rate.
B)would have to increase the money supply.This would move unemployment further from the natural rate.
C)would have to decrease the money supply.This would move unemployment closer to the natural rate.
D)would have to decrease the money supply.This would move unemployment further from the natural rate.

Question

Quizplus · Accepted Answer

To counteract a decrease in aggregate demand and maintain zero inflation, the central bank would increase the money supply, which would help reduce unemployment towards the natural rate by stimulating economic activity.

If a Central Bank Were Required to Target Inflation at Zero,then