If a Negative Supply Shock Is Associated with a Decline

Multiple Choice

If a negative supply shock is associated with a decline in potential output, policymakers need to:

A) Raise the real interest rate by even less than they would in the case of a recessionary gap
B) Raise the real interest rate by even more than they would in the case of a recessionary gap
C) Raise the real interest rate by the same amount as they would in the case of a recessionary gap
D) Not shift the monetary policy reaction curve