Multiple Choice
If a negative supply shock is associated with a decline in potential output, keeping inflation at its target requires:
A) a leftward shift in the monetary policy reaction curve because there is an expansionary gap.
B) a rightward shift in the monetary policy reaction curve because there is an expansionary gap.
C) a leftward shift in the monetary policy reaction curve because there is a recessionary gap.
D) a rightward shift in the monetary policy reaction curve because there is a recessionary gap.
Correct Answer:
Verified
Correct Answer:
Verified
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