If a central bank were required to target inflation at zero,then when there was a negative aggregate supply shock the central bank
A)would have to increase the money supply.This would move unemployment closer to the natural rate.
B)would have to increase the money supply.This would move unemployment further from the natural rate.
C)would have to decrease the money supply.This would move unemployment closer to the natural rate.
D)would have to decrease the money supply.This would move unemployment further from the natural rate.

Question

Quizplus · Accepted Answer

A negative aggregate supply shock typically increases inflation and unemployment. To target zero inflation, the central bank would decrease the money supply, which would further increase unemployment, moving it further from the natural rate.

If a Central Bank Were Required to Target Inflation at Zero,then