Shocks to _____ require the Fed to choose between inflation and output stability, while shocks to _____ do not require the Fed to choose between inflation and output stability.
A)the stock market; aggregate demand
B)the stock market; aggregate supply
C)aggregate demand; aggregate supply
D)aggregate supply; aggregate demand

Question

Quizplus · Accepted Answer

Shocks to aggregate supply require the Fed to choose between inflation and output stability because they can cause both higher inflation and lower output. In contrast, shocks to aggregate demand do not require such a trade-off, as they typically affect inflation and output in the same direction.

Shocks to _____ Require the Fed to Choose Between Inflation