- CFA Exams
- CFA Level I Exam
- Topic 2. Economics
- Learning Module 4. Monetary Policy
- Subject 3. Monetary Policy Objectives
CFA Practice Question
If inflation is caused by a demand shock, raising interest rates will likely ______
A. bring down the inflation level.
B. push the inflation level further up.
C. increase the unemployment rate.
Explanation: If the central bank is sure that there is a positive demand shock, raising interest rates is appropriate to bring the inflationary pressures under control.
User Contributed Comments 1
User | Comment |
---|---|
davcer | Contractionary policy works well with demand shock inflation, but not with supply shock inflation |