Starting from a long-run equilibrium,immediate or eventual decreases in the rate of inflation may be the result of any of the following EXCEPT
A) a downward inflation shock.
B) an upward inflation shock.
C) a decrease in government purchases.
D) a monetary "tightening."
E) a tax increasE.

Question

Quizplus · Accepted Answer

An upward inflation shock would cause an increase in the rate of inflation, not a decrease. The other options - a downward inflation shock, a decrease in government purchases, a monetary tightening, and a tax increase - could all potentially lead to a decrease in the rate of inflation.

Starting from a Long-Run Equilibrium,immediate or Eventual Decreases in the Rate