The propagation mechanism
A)explains why shocks to the economy have long-lasting effects
B)says that changes in money supply affect individual markets but have only limited effects on the economy since markets clear rapidly
C)supports the notion that anticipated money supply changes have no real effect on output
D)says that unemployment is a result of firms paying workers higher than market-clearing wages to get them to work harder
E)none of the above

Question

Quizplus · Accepted Answer

The propagation mechanism explains why shocks to the economy, such as a recession, can have long-lasting effects. The effects of the shock can propagate throughout the economy, leading to a persistent decline in output and employment.

The Propagation Mechanism