If a positive aggregate demand shock occurs and monetary policy is not credible then ________.

Question

Quizplus · Accepted Answer

When a positive aggregate demand shock occurs and monetary policy is not credible, interest rates will rise and inflation will increase. This occurs because without credible monetary policy, firms and consumers may perceive the increase in demand as long-term and adjust their expectations accordingly, leading to an increase in prices.

If a Positive Aggregate Demand Shock Occurs and Monetary Policy