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What is the fundamental tradeoff faced by The Fed when responding to a negative real shock? (Three sentences or less)
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- When the economy is hit by a real shock, some economists think that the best response is for the Fed to do nothing. They fear that there is no good response to a real shock. Why is that? Explain.Following an inflation shock, explain why unemployment goes up before the economy returns to medium-run equilibriumExplain and demonstrate graphically the effects of a negative supply shock in both the short-run and long-run. (Hint: Use AD-AS framework)
- Which is an example of a positive supply shock? Group of answer choices: Large decrease in input prices Strong collective bargaining from unions Strict environmental protection laws Larger increase in oil prices Suppose an economy experiences a positive supply shock. What is the short-run effect on output and the price level? Group of answer choices: Output and the price level both rise. Output and the price level both fall. Output rises and the price level falls. Output falls and the price level rises.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“Policymakers would never respond by stabilizing output in response to a temporary positive supply shock.”Is this statement true, false, or uncertain? Explain youranswer
- On a graph, show the impact of the permanent supply shock on unemployment and inflation in the long run and in the short run.Why are inflation expectations so important to modern monetary policy? What are several ways that central banks try to manage inflation expectations?Which problem should ALWAYS be addressed by the Fed or by the government as a matter of priority when there is a temporary supply shock?Group of answer choices 1It is impossible to know which of the two should be addressed in all cases. 2The output problem. 3The inflation problem. 4The unemployment problem.
- Starting from a long run equilibrium, without any policy intervention, the long run impact of a temporary adverse supply shock is that prices will: a. be permanently higher and output will be restored to its long run level. b. return to the old level and output will be permanently lower. c. return to the old level and output will be restored to its long run level. d. be permanently higher and output will be permanently loweWhich of the following events will not cause a supply shock that would shift the aggregate supply curve? a.Tax for energy use introduced to help reduce global emissions b.natural disasters which destroys agricultural products c.adjustments in the interest rates for housing d.The OPEC cartel for oil prices collapses due to political disagreementsConsidering the efforts put forward by the Fed during the last recessionary crisis and prior, are there still any tools available to the Fed to utilize as we move from deflation into an inflationary period?
