With a positive aggregate demand shock, monetary policy credibility can ________.

Question

Quizplus · Accepted Answer

With a positive aggregate demand shock, there will be an increase in demand for goods and services, leading to higher prices and potentially higher inflation. However, if monetary policy credibility is strong, it can help stabilize inflation by implementing appropriate policies and maintaining the public's trust in the Central Bank's ability to control inflation. Therefore, option A is the correct choice. Options B, C, and D are not directly related to the impact of a positive aggregate demand shock.

With a Positive Aggregate Demand Shock, Monetary Policy Credibility Can