Supply Shocks and Monetary Policy. The lesson from the oil price shocks of the 1970s is that supply shocks are harder for policymakers to cope with than demand shocks. a. Use the aggregate...

Supply Shocks and Monetary Policy. The lesson from the oil price shocks of the 1970s is that supply shocks are harder for policymakers to cope with than demand shocks.

a. Use the aggregate demand-and-supply model to show the adverse effects of inflation targeting to fight a supply shock.

b. Explain the main advantage of price targeting instead of inflation targeting.