To Prevent Inflation from Becoming Permanently Higher Following an Adverse

Question 10
Multiple Choice

To prevent inflation from becoming permanently higher following an adverse inflation shock the Fed must ____,while to offset the effect of an increase in aggregate demand the Fed must _____. A)lower the inflation rate target;adjust the real interest rate target to the level at which saving equals investment in the long run. B)raise the inflation rate target;adjust the real interest rate target to the level at which saving equals investment in the long run. C)maintain the inflation rate target;maintain the real interest rate target. D)maintain the inflation rate target;adjust the real interest rate target to the level at which saving equals investment in the long run.