When a negative shock to aggregate demand occurs,the inflation rate will:
A) increase.
B) remain the same.
C) decrease.
D) be automatically adjusted by the Fed.

Question

Quizplus · Accepted Answer

A negative shock to aggregate demand means that there is less demand for goods and services in the economy. This will lead to a decrease in prices as businesses try to incentivize consumers to spend. As prices fall, the inflation rate will also decrease. Therefore, the correct answer is C, decrease. The Fed can take actions to counteract the negative shock and stabilize the economy, but the inflation rate will not be automatically adjusted by the Fed.

When a Negative Shock to Aggregate Demand Occurs,the Inflation Rate