When facing a real shock,a central bank will encounter a dilemma that forces it to choose between:
A) too low a rate of growth or too high a rate of inflation.
B) too high a rate of growth or too low a rate of inflation.
C) too low a rate of growth or too low a rate of inflation.
D) too high a rate of growth or too high a rate of inflation.

Question

Quizplus · Accepted Answer

A real shock to the economy, such as a sudden increase in oil prices, can lead to higher inflation and lower growth. Central banks face a dilemma between tightening monetary policy to fight inflation, which may further slow growth, or loosening it to support growth, potentially worsening inflation.

When Facing a Real Shock,a Central Bank Will Encounter a Dilemma