Suppose that there is a negative aggregate demand shock and the central bank commits to an inflation rate target. If the commitment is credible,then
A)the public's expected inflation will remain unchanged.
B)the short-run aggregate supply curve will rise.
C)over time inflation will fall.
D)all of the above.
E)both A and C.

Question

Quizplus · Accepted Answer

When a central bank commits to an inflation rate target and the commitment is credible, the public's expected inflation remains unchanged because they trust the central bank to adjust monetary policy as necessary to hit the target, even after a negative aggregate demand shock.

Suppose That There Is a Negative Aggregate Demand Shock and the Central