A negative shock in aggregate demand will likely result in ________.
A) no permanent change in output
B) no permanent change in the equilibrium inflation rate if the central bank responds by lowering interest rates
C) an increase in aggregate demand for any inflation rate, if the central bank responds by lowering interest rates
D) all of the above
E) none of the above

Question

Quizplus · Accepted Answer

A negative shock in aggregate demand can be countered by the central bank lowering interest rates, which can stabilize output and inflation, making all options potentially correct.

A Negative Shock in Aggregate Demand Will Likely Result in ________