Empirical studies that have examined the longer-term effects of increasing the minimum wage Find more significant long-term effects because new firms are in a better position to choose labor-saving technology than existing firms Have been criticized for failing to control for dynamic shocks to the economy over the long run Conclude that the short-term effect is no different from the long-term effect Find more negative employment effects in the short-term than in the long-term

Empirical studies that have examined the longer-term effects of increasing the minimum wage Find more significant long-term effects because new firms are in a better position to choose labor-saving technology than existing firms Have been criticized for failing to control for dynamic shocks to the economy over the long run Conclude that the short-term effect is no different from the long-term effect Find more negative employment effects in the short-term than in the long-term

MACROECONOMICS FOR TODAY

10th Edition

ISBN:9781337613057

Author:Tucker

Publisher:Tucker

Chapter16: Monetary Policy

Section16.A: Policy Disputes Using The Self Correcting Aggregate Demand And Supply Model

Problem 15SQ

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A severe negative supply shock occurs when there is a significant reduction in the supply of key inputs, such as labor, raw materials, or energy. This can lead to a reduction in output, higher prices, and potentially stagflation (i.e., high inflation and low economic growth). To tackle the effects of a severe negative supply shock, governments and central banks may use various macroeconomic policies. Supply-side policies: Supply-side policies refer to measures aimed at increasing the productive capacity of the economy. In the case of a severe negative supply shock, the government may implement supply-side policies such as tax incentives or subsidies to encourage firms to invest in new technology or production methods. However, these policies may take time to have an impact and may not be sufficient to offset the immediate effects of the supply shock. explain this graphically please.
Explain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run. (Hint: Use AD-AS framework)
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Consider an economy that is initially in its long-run equilibrium. Suppose this economy suffers a temporary negative supply shock. If the central bank’s sole objective is to stabilize output in the short-run, then what will happen after the central bank has responded according to its objective? A. Inflation will be lower, output will back at its original level B. Inflation will be lower, output will be lower C. Inflation will be higher, output will be higher D. Inflation will be lower, output will be higher E. Inflation will be higher, output will be lower F. Inflation will be higher, output will back at its original level
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Some economists believe that a reduction in the level of economic activity and an increase in unemployment are inevitable.’ Use the extracts and your knowledge of economics to assess the view that when an economy experiences a negative economic shock there will always be a sustained increase in unemployment.
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