In this chapter we discussed the policy decisions that central banks can make to return an economy back to a stable equilibrium whenever there is an outside shock. The policy choices are straightforward and can be decided on directly by the central bank. Why then do central banks not do a betterjob of keeping economies near a stable equilibrium all the time? One issue that arises is that in real life it is very hard to know the true level of (1) . Since this is hard to observe. we need to rely on ination to get an idea of where the economy is. When doing this, we focus on the (2) as our guide. The central bank can have a hard time adjusting the economy appropriately because O A. even though central banks can determine the state of the economy easily, and the economy responds to policy decisions quickly, the policy decisions made by central banks are consistently incorrect. O B. even though central banks can determine the state of the economy easily, they usually do not have the long-run health of the economy as their main goal. 0 C. the economy usually responds too quickly to policy decisions and there is a lot of "noise" in the economy, making it hard to know precise relationships between variables. 0 D. there is a lag in how long it takes the economy to respond to policy decisions and there is a lot of "noise" in the economy, making it hard to know precise relationships between variables. (1) O the policy rate (2) 0 level of ination 0 actual output 0 change in ination 0 potential output