Why do negative supply shocks pose a dilemma for policymakers? A. Negative supply shocks do not respond to policy interventions. B. Monetary policy following negative supply shocks can lead an economy into a deflationary spiral. C. Policymakers must choose between stabilizing inflation and stabilizing economic activity. D. Policies that address negative supply shocks are less effective than those that address positive supply shocks.
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Why do negative supply shocks pose a dilemma for policymakers? A. Negative supply shocks do not respond to policy interventions. B.
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- Which of the following is accurate? Select one: a. Monetary policy is neutral in both the short run and the long run. b. Monetary policy has profound effects on real variables in the long run, but is neutral in the short run. c. Monetary policy has profound effects on real variables in both the short run and the long run. d. Though monetary policy is neutral in the long run, it may have effects real variables in the short run.Why do we impose ceteris paribus on a market when analyzing shocks? A. "Nothing else is changing in a market, so it is a realistic assumption." B. Ceteris Paribus allows analysts the ability to isolate effects from specific market shocks. C. "Market shocks occur one at a time, the assumption allows for sequential analysis." D. All of the answers are correct.If the economy is in long-term equilibrium and cost of energy for production increases, which of the following is likely to occur? Select one: a. It will lead to demand-pulled inflation and create an expansionary gap. b. It will lead to demand-puled inflation and create a contractionary gap. c. It will lead to cost-pushed inflation and create an expansionary gap. d. It will lead to cost-pushed inflation and create a contractionary gap. e. It will create hyperinflation in the economy, but will not create an economic gap.
- Opponents of using policy to stabilize the economy generally believe that a. neither fiscal nor monetary policy have much impact on aggregate demand. b. attempts to stabilize the economy can increase the magnitude of economic fluctuations. c. unemployment and inflation are not cause for much concern. d. All of the above are correct.Suppose an economy experiences an increase in exports. a. Using the Aggregate Demand- Aggregate Supply model, explain the effect of this increase in the short run. b. What can the policy-makers do to address this shock and why should policymakers take any action? Would you choose a fiscal policy or a monetary policy? Why? With diagramsA. Illustrate and explain the impact that changes in the money supply have in the economy through a neoclassical perspective. B. Illustrate and explain the impact that changes in the money supply have in the economy through a Keynesian perspective.
- Which of the following is false? a. If people can anticipate the plans of policymakers and alter their behavior quickly, their behavior could neutralize the intended impact of government action on real GDP. b. The theory of rational expectations leads to optimistic conclusions regarding macroeconomic policy’s ability to achieve its intended economic goals. c. Rational expectations economists believe that wages and prices are flexible, and that workers and consumers incorporate the likely consequences of government policy changes quickly into their expectations. d. Catching consumers and businesspeople off-guard with macroeconomic policy changes gets harder the more you try to do it. e. None of the above is false; all are true.Question 2:a. Give one example of a demand shock (a change that shifts demand curve) and oneexample of supply shock (a change that shifts supply curve) that may lead to an inflationarygap (positive output gap).b. How would the economy eliminate the inflationary gap and return to its long runequilibrium without any interventions from the policymakers (self-correcting mechanism)?If there is a decrease in inflation what happens to aggregate supply. Aggregate demand would shift downwards because it would fall but would supply be affected by this? With this shift in inflation and the decrease in demand what would policy makers do in response to this?
- Should policymakers use monetary policy, fiscal policy, or both in an effort to stabilize the economy? The following questions address the issue of how monetary and fiscal policies affect the economy and the pros and cons of using these tools to lessen economic fluctuations. NOTE: make sure to ADJUST GRAPH to the proper formatiom! NOTE: options for blanks 1. According to the graph, this economy is in ______ (a recession OR an expansion) 2. natural rate of output, the government could use ______ (an expansionary OR a contractionary) monetary policy such as _____ (decreasing taxes OR increasing taxes) 3. __________(leave the economy unchanged OR increase the long run capacoty to produce goods and services OR push the economy beyond the natural rate of output OR fall short of the natural rate of output) once the effects of the policy are fully realized.are anti-inflationary policies effective when there are adverse supply shocks? which monetary or fiscal policy would be more effective?Explain whether policy makers should be more concerned about the economy going into a recession or facing high inflation and why.