In which case, if any, will inflation remain higher after a temporary adverse su

Question

In which case, if any, will inflation remain higher after a temporary adverse supply shock?

QUESTION 9 In which case, if any, will inflation remain higher after a temporary adverse supply shock? a. both when the central bank maintains a higher money supply growth rate and when the central bank does nothing Ob. only if the central bank does nothing c. only if the central bank maintains a higher money supply growth rate d. None of the above is correct. Whether the central bank maintains a higher money supply growth rate or not, the inflation rate will return to its original level.

Explanation / Answer

Ans.

C. only if central bank maintains a higher money supply growth.

Inflation will remain higher after temporary adverse supply shock if central bank increases money sulppy growth.So inflation is higher due to real shock and higher money supply..However central bank increases money growth rate to restore growth and reduce unemployment in economy but there will also be high inflation rate.

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