If monetary policymakers do not change their inflation target and aggregate demand shifts left:
A) there will be a temporary decrease in output.
B) potential output will decrease.
C) there will be an increase in inflation in the long run.
D) it will result in a permanent reduction in inflation.

Question

Quizplus · Accepted Answer

If aggregate demand shifts left, there will be a temporary decrease in output because there will be reduced demand for goods and services. However, if monetary policymakers do not change their inflation target, there will be no change in the long-term inflation rate.

If Monetary Policymakers Do Not Change Their Inflation Target and Aggregate