A reduction in the central bank's inflation target will result in:
A) an increase in potential output.
B) no change in potential output.
C) a decrease in potential output.
D) the long-run aggregate supply curve having an upward slope.

Question

Quizplus · Accepted Answer

A reduction in the central bank's inflation target primarily affects monetary policy and inflation expectations, not the economy's potential output. Potential output is determined by factors like technology, labor, and capital, not by inflation targets.

A Reduction in the Central Bank's Inflation Target Will Result