If the public believes the commitment to a nominal anchor to be credible,the effect of a positive aggregate demand shock is for ________.
A)short-run aggregate supply to shift up
B)short-run aggregate supply to be unaffected
C)short-run aggregate supply to shift down
D)inflation,but not economic activity,to increase

Question

Quizplus · Accepted Answer

A credible commitment to a nominal anchor (such as an inflation target) means that the central bank is expected to take actions to counteract inflationary pressures. As a result, the aggregate demand shock would not shift the short-run aggregate supply curve; instead, the central bank's actions would aim to stabilize prices, affecting the demand side of the economy rather than the supply side.

If the Public Believes the Commitment to a Nominal Anchor