Monetary policymakers can respond to the impact that positive inflation shocks have on output by shifting the:
A) monetary policy reaction curve left.
B) monetary policy reaction curve right.
C) short-run aggregate supply curve to the left.
D) short-run aggregate supply curve to the right.

Question

Quizplus · Accepted Answer

A positive inflation shock shifts the short-run aggregate supply curve to the left. To offset this, the central bank can shift the monetary policy reaction curve to the left, which will increase interest rates and reduce aggregate demand, thus shifting the short-run aggregate supply curve back to the right.

Monetary Policymakers Can Respond to the Impact That Positive Inflation