If a social preference for low inflation is strong, then the optimal policy response to oil shocks might be reducing ____ to keep the price level _____.
A) AD, constant
B) AD, increasing
C) SRAS, constant
D) SRAS, increasing
E) none of the above

Question

Quizplus · Accepted Answer

Reducing Aggregate Demand (AD) can help to counteract inflationary pressures caused by oil shocks, keeping the price level more constant. This aligns with a social preference for low inflation.

If a Social Preference for Low Inflation Is Strong, Then