In the event of a supply shock, a central bank that prioritizes stable inﬂation over GDP, will:
A) try to boost aggregate demand.
B) increase interest rates.
C) not take any action because the supply shock is temporary.
D) increase money supply.

Question

Quizplus · Accepted Answer

In the event of a supply shock, a central bank prioritizing stable inflation would likely increase interest rates to curb rising prices, even at the potential cost of slowing GDP growth. This action helps to control inflation by reducing spending and borrowing.

In the Event of a Supply Shock, a Central Bank