ECON MACRO
5th Edition
ISBN: 9781337000529
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 10, Problem 4.6P
To determine
Examples of adverse supply shock and beneficial supply shock and discuss the impact.
Introduction:
Adverse Supply shock: Adverse Supply shock is an occurrence which causesan increase in the cost of production and reduces the supply at a particular price level shifting the supply curve leftward.
Beneficial Supply shock: Beneficial Supply shock is an occurrence which causesa decrease in the cost of production and increases the supply at a particular price level shifting the supply curve rightward.
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Students have asked these similar questions
(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?
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?
Chapter 10 Solutions
ECON MACRO
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- Suppose that the oil price sharply increased for a while, which increased production costs, causing an adverse supply shock. A. Can policymakers do something to accommodate this shock? Would the outcome be different in this case?arrow_forwardSome 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.arrow_forwardWhat happened first was a major policy-induced supply shock. The lockdown forced firms in several directly affected sectors, from restaurants to hotels to airlines, to halt (or at least to drastically decrease) supply. In contrast to other supply shocks analyzed earlier in the book, many firms had no choice other than to stop or decrease production. As a result of sharply lower output, and thus lower income, and of increased uncertainty, this shock had a major effect on demand, not just in the sectors directly affected by the lockdown, but also in the non-affected sectors. Thus, the outcome was a combination of a supply shock and a sharp demand response. In that context, the role of macroeconomic policy was twofold. First: While it could not do much to increase output in the affected sectors, it needed to protect the firms in those sectors from going bankrupt and the workers who lost work from going hungry. Second: It needed to limit the effect of lower demand in the non-affected…arrow_forward
- 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”?arrow_forwardGive an example of a demand shock and a supply shock and show how it may push output and employment away from their natural levels.arrow_forwardWhy does the economy take several periods before returning to its steady state following a shock?arrow_forward
- Detail the macroeconomic policies that might be used to tackle the effects of a severe negative supply shock and explain the dilemmas faced.arrow_forwardWhy, in general, do shocks force people to make changes? Give at least two examples from your own experience.arrow_forwardWhat is the fundamental tradeoff faced by The Fed when responding to a negative real shock? (Three sentences or less)arrow_forward
- What are the main factors affecting equilibrium in goods market (Demand and supply)? Explain both beneficial and adverse shocks.arrow_forward“Policymakers would never respond by stabilizing output in response to a temporary positive supply shock.”Is this statement true, false, or uncertain? Explain youranswerarrow_forwardHow does the economy evolve over time after the initial impact of the shock?arrow_forward
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