A decrease in the inflation target by the central bank would:
A) have no impact on the positioning of the dynamic aggregate demand curve.
B) cause the dynamic aggregate demand curve to shift to the left.
C) cause the dynamic aggregate demand curve to shift to the right.
D) be reflected by a movement down and along the existing dynamic aggregate demand curve.

Question

Quizplus · Accepted Answer

A decrease in the inflation target by the central bank typically leads to tighter monetary policy to achieve lower inflation rates. This can result in reduced aggregate demand, hence shifting the dynamic aggregate demand curve to the left.

A Decrease in the Inflation Target by the Central Bank