Assume that an economy can be hit by demand- or supply-side shocks of equal magnitude. Which of the following statements is most correct? A. The impact on inflation will be greater following a demand-side shock if policymakers do not respond B. The imapct on inflation will be greater following a demand-side shock if policymakers do respond C. There will be no impact on inflation following a supply-side shock if policymakers do not respond D. The impact on inflation will be greater following a supply-side shock if policymakers do not respond Q2. If the reserve bank's policy reaction function is r=0.02+p, the planned aggregate expenditure function for the economy is PAE=5000+0.8Y-20000r, current inflation equals 6%, and potential output(Y*) equals 19000, then short-run equilibrium out put equals ___ and inflation will eventually equal ___% when the economy returns to potential. A. 18000;6 B. 17000;4 C. 17000;5 D 18000;7
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