Economists say that central bankers face a \"cruel trade-off\" between the rates
ID: 1111533 • Letter: E
Question
Economists say that central bankers face a "cruel trade-off" between the rates of inflation and real growth when a potential growth shock hits. What does this mean? Both the inflation rate and real growth rate will increase when a Solow growth shock hits. Both the inflation rate and real growth rate will decrease when a potential growth shock hits. A Solow growth shock will put a stop to international trade. A central bank can meet either its inflation goal or its real growth rate goal but not both. Economists say that central bankers face a "cruel trade-off" between the rates of inflation and real growth when a potential growth shock hits. What does this mean? Both the inflation rate and real growth rate will increase when a Solow growth shock hits. Both the inflation rate and real growth rate will decrease when a potential growth shock hits. A Solow growth shock will put a stop to international trade. A central bank can meet either its inflation goal or its real growth rate goal but not both.Explanation / Answer
The central bank cannot simultaneously raise money growth and lower money growth.
D) It can only meet its inflation goal or its real growth goal, not both.