Suppose that there is a negative aggregate supply shock and the centra

Suppose that there is a negative aggregate supply shock and the central bank commits to an inflation rate target.

A) If the commitment is credible, the public’s expected inflation will remain unchanged.
B) Credible policy produces better outcomes on both inflation and output in the short run.
C) Policies that are not credible produce worse economic contraction.
D) all of the above.
E) both A and C.

ANSWER

D