Shocks to aggregate demand require a central bank to choose

Shocks to aggregate demand _____ require a central bank to choose between inflation and output stability, while shocks to aggregate supply ____ require a central bank to choose between inflation and output stability.

Select one:

a. do; do

b. do; do not

c. may or may not; may or may not

d. do not; do

Solution

Ans is D (do not; do)

Shocks to aggregate demand (do not) require a central bank to choose between inflation and output stability, while shocks to aggregate supply (do) require a central bank to choose between inflation and output stability.