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- Give an example of a demand shock and a supply shock and show how it may push output and employment away from their natural levels. Include a graph.Classify each of the following as a supply shock or a demand shock. Use a graph to show the effects on inflation and output in the short run and in the long run. Financial frictions increase. Steel workers go on strike for four weeks. Households and firms become more optimistic about the economy. Favorable weather produces a record crop of soybeans and cotton in the Midwest.Classify each of the following as a supply shock or a demand shock. Use a graph to show the effects on inflation and output in the short run and in the long run: a. Households and firms become more optimistic about the economy. b. Favorable weather causes an increase in crude palm oil production in Malaysia. c. Typhoon Rai hit Philippines and caused a massive destruction of houses and 400 death tolls.
- What is the basic economic philosophy behind the conclusion that “a big shock to consumer spending or business confidence sets off waves of job losses and layoffs”?Classify each of the following as a supply shock or ademand shock. Use a graph to show the effects on inflation and output in the short run and in the long run.a. Financial frictions increase.b. Households and firms become more optimistic aboutthe economy.c. Favorable weather produces a record crop of wheatand corn in the Midwest.d. Auto workers go on strike for four months.How does the economy evolve over time after the initial impact of the shock?
- (Supply Shocks) Give an example of an adverse supply shock and illustrate graphically. Now do the same for a beneficial supply shock.Suppose that the oil price sharply increased for a while, which increase.Can policymakers do something to accommodate this shock? Would the outcome Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. Can policymakers do something to accommodate this shock? Would the outcome be different in this case?Which of the following would be positive aggregate demand shock? A) a slower money growth B) increased import growth C) faster growth of government spending D) decreased investment spending E) None of the above.
- What are supply shocks? Why are policy choices hard when there are negative supply shocks? Would you model the pandemic of 2020 as a supply shock or a demand shock? Why?Assess the view that when an economy experiences a negative economic shock there willalways be a sustained increase in unemployment.an increase in the corporate tax rate is an example of ? demand shock, supply shock, or neither