Question

“Policymakers would never respond by stabilizing output in response to a temporary positive supply shock.” Is this statement true, false, or uncertain? Explain your answer.

Short answer

The statement is uncertain.

Step-by-step solution

Step 1. Introduction

Inflation is defined as a steady increase in the prices of goods and services within an economy over time.

Step 2. Explanation

Because the extent of the brief positive supply shock affects the assertion, it is ambiguous. If it is significant enough, it can lower inflation or raise output, but this will increase inflation variability and uncertainty, destabilising the economy. As a result, policymakers' responses are influenced by the magnitude of the brief positive supply shock.

Step 3. Conclusion

Hence, the statement is uncertain.