An economy has been hit by a negative short-run aggregate supply
shock that has moved its short-run equilibrium from point A to
point B (as shown on the graph above). If the central bank in
this economy wants to bring the price level back to its original
value (control inflation) following this shock, then what practical
action should it undertake?
Raising the cash rate.
Lowering the cash rate.
Conducting quantitative easing.
An Economy Has Been Hit By A Negative Short Run Aggregate Supply Shock That Has Moved Its Short Run Equilibrium From Poi 1 (23.48 KiB) Viewed 37 times
LRAS Price Level SRAS SRAS B AD Real GDP
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