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The Reason That Some Economists Advise Central Banks to Never

Question 11

Multiple Choice

The reason that some economists advise central banks to never validate a negative supply shock is


A) because the economy's adjustment process is ineffective.
B) that there are no short- run effects on any real variables, and so it is not worthwhile.
C) the monetary validation results in a higher level of unemployment.
D) the monetary validation causes downward pressure on wages.
E) to avoid the possibility of entrenching expectations and creating a wage- price spiral.

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