The speed at which an economy returns to potential following an adverse inflation shock depends on:
A)the Federal Reserve's target inflation rate.
B)the Federal Reserve's target real interest rate.
C)the level of potential output.
D)the public's expectations of how the Federal Reserve will act.

Question

Quizplus · Accepted Answer

The public's expectations of how the Federal Reserve will act influence inflation dynamics and economic recovery, as expectations can affect spending and investment decisions.

The Speed at Which an Economy Returns to Potential Following