Question

Which of the following statements is CORRECT?

A. If most shocks to the economy are aggregate demand shocks or permanent aggregate supply shocks, then policy that stabilizes inflation will also stabilize economic activity, even in the short run.
B. If temporary supply shocks are more common, then a central bank must choose between stabilizing inflation and stabilizing output in the short run.
C. Stabilizing economic activity in response to a temporary supply shock results in a larger deviation of inflation from the inflation target rather than a stabilization of inflation.
D. all of the above.

Answer 1

The correct answer is D. all of the above.

Step-by-step explanation:

The economic disturbances are determined by problems of income and fiscal expenses, which supposes a direct influence on own market conditions such as demand and supply, but also a direct consequence on the activity and the policies necessary to face these problems. The supply and demand shocks determine the behavior of the price at a given moment, along with the development of the aggregate market (GDP) during the current year.