Use the aggregate supply/aggregate demand model in Figure 13.4 to answer the following scenario. In the 1990s, Japan experienced a prolonged sluggish economy. If the Bank of Japan targeted inflation, it would have responded to this situation by ________ the inflation target rate, pushing the economy from point ________ to point ________; eventually the economy would have returned to the steady state at point ________.
A) raising; a; b; c
B) lowering; a; b; c
C) raising; a; d; c
D) lowering; c; d; a
E) Not enough information is given.

Question

Quizplus · Accepted Answer

The Bank of Japan would have responded to the prolonged sluggish economy by raising the inflation target rate, pushing the economy from point a to point b. Eventually, the economy would have returned to the steady state at point c.

Use the Aggregate Supply/aggregate Demand Model in Figure 13