In the events of an increase in the international price of oil that encouraged the central bank to accept lower real interest rates, inflation would most likely ?
Correct answer: B. increase
- A. fall
- B. increase
- C. remain the same
- D. fluctuates
Explanation
A rise in oil prices is an adverse supply shock, but accepting lower real interest rates is an expansionary monetary response that stimulates demand. This response tends to increase inflationary pressure.
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