If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium,then,in the short run,output _________ and inflation _________.
A) decreases;increases
B) decreases;does not change
C) increases;increases
D) increases;decreases
E) increases;does not change

Question

Quizplus · Accepted Answer

In the short run, reducing inflation typically involves contractionary monetary policy, which decreases aggregate demand, leading to a decrease in output while inflation remains sticky and does not change immediately.

If the Central Bank Moves to Reduce the Inflation Rate