Question 1

In the 1960s and 1970s,research funding by the U.S.government and some universities led to revolutionary advances in network computing.These advances in communication and network technology remained largely isolated to governmental and academic use.By the mid-to-late 1990s,the Internet began to be widely adopted with massive increases in productivity (which journalists dubbed the "new economy").Which of the following is an appropriate description of the mechanism behind this supply shock?

Accepted Answer

The mechanism behind the supply shock was the increase in productive capacity due to the adoption of the Internet, leading to a rightward shift of the LRAS and a protracted decline in the unemployment rate of the 1990s. Choices A and C are incorrect as they refer to a negative output gap and inflation rate, respectively, which are not directly related to the supply shock caused by the widespread adoption of the Internet. Choice D is incorrect as it includes all the options, including the incorrect ones. Choice E is incorrect as there is a correct answer.

Question 2

In 1973,the Organization of Petroleum Exporting Countries (OPEC)engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

Accepted Answer

A negative supply shock, such as the one caused by OPEC's actions in 1973, typically results in a leftward shift of the Aggregate Supply (AS) curve. This shift can lead to higher prices (inflation) and lower output, which can increase unemployment as businesses adjust to the higher costs of production and reduced demand. Thus, all the described effects (A, B, C) are appropriate descriptions of the consequences of a negative supply shock.

Question 3

AD - AS Shocks 
-On the graph above,suppose the economy is at point F when there is a permanent positive supply shock.The new long-run equilibrium is at point ________.

Accepted Answer

The answer of AD - AS Shocks 
-On the graph...

Question 4

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

Accepted Answer

A temporary supply shock, such as one caused by a war in the Middle East, would indeed lead to a temporary increase in prices due to a restriction in the supply of oil, a decrease in output as the aggregate supply (AS) curve shifts to the left, and a temporary shift in the AS curve with output and inflation eventually returning to their original long-run values, assuming no permanent changes to the economy's capacity to produce.

Question 5

Which of the following is (are)linked to (an)adverse supply shock(s)?

Accepted Answer

All of the given events are linked to adverse supply shocks. The Arab-Israeli war of 1973 led to an oil embargo by Arab countries and a sharp increase in oil prices, which caused supply disruptions and inflation. The Iranian revolution of 1979 resulted in a similar situation with reduced oil production and higher prices. The wage renegotiations following the termination of wage and price controls in 1973 led to higher labor costs and reduced profit margins, which also put upward pressure on prices.

Question 6

In the mid-to-late 1990s,changes in the health care industry,substantially reduced health care costs relative to other goods and services.Which of the following is an appropriate description of the mechanism behind this supply shock?

Accepted Answer

A reduction in health care costs can be seen as a positive supply shock, which would shift the Aggregate Supply (AS) curve to the right. This shift can explain a short-run fall in unemployment as firms are able to produce more at a lower cost (A). Over time, this increase in productive capacity can lead to a rightward shift of the Long-Run Aggregate Supply (LRAS), contributing to a sustained decline in unemployment (B). Additionally, a positive output gap resulting from the initial shock could be closed by the economy's adjustment to a new equilibrium, reflected in the rightward shift of the LRAS, which could explain a prolonged decline in inflation rates (C). Therefore, all the given mechanisms (A, B, C) are plausible explanations for the observed economic outcomes, making D the correct choice.

Question 7

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

Accepted Answer

A temporary supply shock, such as one caused by a war in the Middle East, would typically lead to a temporary increase in prices and a temporary decrease in output, known as stagflation. However, neither the increase in prices nor the decrease in output is necessarily permanent, as economies can adjust over time through various mechanisms, such as monetary policy adjustments, shifts in supply and demand, and resolution of the initial shock. None of the provided options accurately describe the typical effects of a temporary supply shock, making E the correct choice.

Question 8

If the adoption of a new technology led to gains in productivity ________.

Accepted Answer

If a new technology leads to gains in productivity, it will likely result in an increase in output and a decrease in inflation. This positive supply shock would have immediate effects in the short-run, but if the technology permanently alters the productive capacity of the economy, the effects on output and inflation would be permanent as well. Therefore, all of the above choices are correct.

Question 9

Suppose that households and businesses increase autonomous expenditures,driving output well above potential.Describe,in detail,how monetary policy might react to minimize the increase in inflation.

Accepted Answer

The answer of Suppose that households and businesses increase autonomous...

Question 10

AD - AS Shocks 
-On the graph above,suppose the economy is at point F when there is a temporary negative supply shock.The new long-run equilibrium is at point ________.

Accepted Answer

The answer of AD - AS Shocks 
-On the graph...

Question 11

When a temporary shock in the economy involves a restriction in supply ________.

Accepted Answer

A temporary shock in the economy that involves a restriction in supply is referred to as a negative supply shock. As a result, commodity prices tend to rise, and a reduction in output typically ensues. Therefore, all of the options mentioned in the question are correct.

Question 12

AD - AS Shocks 
-On the graph above,a movement from point ________ to point ________ might represent a positive supply shock.

Accepted Answer

The answer of AD - AS Shocks 
-On the graph...

Question 13

Suppose there is a temporary supply shock because of a war in the Middle East,then ________.

Accepted Answer

A temporary supply shock due to a war in the Middle East would restrict the supply of oil, leading to a cost push shock. As a result, the AS (aggregate supply) curve would shift to the left, leading to a decrease in output and an increase in prices. This situation could potentially lead to stagflation, which is a combination of high inflation and low economic growth. Therefore, all of the above options are correct.

Question 14

If a new government adopted some ill-advised regulations causing the economy to be less efficient ________.

Accepted Answer

Ill-advised regulations that make the economy less efficient can cause a negative supply shock, leading to higher production costs and thus an immediate rise in inflation as businesses pass these costs onto consumers.

Question 15

A fall in import prices or an increase in productivity ________.

Accepted Answer

A fall in import prices or an increase in productivity are both considered positive supply shocks as they increase the supply of goods and services. This can lead to lower prices for consumers and increase output, which can have a positive impact on the economy. It is not necessarily true that it will lead to a rise in commodity prices or a reduction in output, therefore B and C are incorrect.

Question 16

What is the main difference between a temporary and permanently negative supply shock?

Accepted Answer

The answer of What is the main difference between a...

Question 17

AD - AS Shocks 
-On the graph above,suppose the economy has moved from point H to point G.If the shock was temporary and inflation expectations are adaptive,the economy will next ________.

Accepted Answer

If the shock was temporary and inflation expectations are adaptive, the economy will gradually adjust back towards its original position, moving to a point between G and H as expectations and conditions normalize.

Question 18

AD - AS Shocks 
-On the graph above,a movement from point ________ to point ________ might represent a negative supply shock.

Accepted Answer

The answer of AD - AS Shocks 
-On the graph...

Question 19

Which of the following is (are)linked to (an)adverse supply shock(s)?

Accepted Answer

The answer of Which of the following is (are)linked to...

Question 20

AD - AS Shocks 
-On the graph above,suppose the economy is at point F when there is a temporary positive supply shock.The new long-run equilibrium is at point ________.

Accepted Answer

A temporary positive supply shock will initially move the economy away from point F, but in the long run, the economy will return to its original equilibrium point F as the effects of the shock dissipate.

Quiz 12: The Aggregate Demand and Supply Model

In 1973,the Organization of Petroleum Exporting Countries (OPEC) engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

AD - AS Shocks -On the graph above,suppose the economy is at point F when there is a permanent positive supply shock.The new long-run equilibrium is at point ________.

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

Which of the following is (are) linked to (an) adverse supply shock(s) ?

In the mid-to-late 1990s,changes in the health care industry,substantially reduced health care costs relative to other goods and services.Which of the following is an appropriate description of the mechanism behind this supply shock?

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

If the adoption of a new technology led to gains in productivity ________.

Suppose that households and businesses increase autonomous expenditures,driving output well above potential.Describe,in detail,how monetary policy might react to minimize the increase in inflation.

AD - AS Shocks -On the graph above,suppose the economy is at point F when there is a temporary negative supply shock.The new long-run equilibrium is at point ________.

When a temporary shock in the economy involves a restriction in supply ________.

AD - AS Shocks -On the graph above,a movement from point to point might represent a positive supply shock.

Suppose there is a temporary supply shock because of a war in the Middle East,then ________.

If a new government adopted some ill-advised regulations causing the economy to be less efficient ________.

A fall in import prices or an increase in productivity ________.

What is the main difference between a temporary and permanently negative supply shock?

AD - AS Shocks -On the graph above,suppose the economy has moved from point H to point G.If the shock was temporary and inflation expectations are adaptive,the economy will next ________.

AD - AS Shocks -On the graph above,a movement from point to point might represent a negative supply shock.

Which of the following is (are) linked to (an) adverse supply shock(s) ?

AD - AS Shocks -On the graph above,suppose the economy is at point F when there is a temporary positive supply shock.The new long-run equilibrium is at point ________.

Quiz 12: The Aggregate Demand and Supply Model

In 1973,the Organization of Petroleum Exporting Countries (OPEC) engineered a quadrupling of oil prices by restricting oil production.Which of the following is an appropriate description of this negative supply shock?

AD - AS Shocks -On the graph above,suppose the economy is at point F when there is a permanent positive supply shock.The new long-run equilibrium is at point ________.

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

Which of the following is (are) linked to (an) adverse supply shock(s) ?

In the mid-to-late 1990s,changes in the health care industry,substantially reduced health care costs relative to other goods and services.Which of the following is an appropriate description of the mechanism behind this supply shock?

Suppose there is a temporary supply shock because of a war in the Middle East,then,ceteris paribus,the ensuing cost push shock ________.

If the adoption of a new technology led to gains in productivity ________.

Suppose that households and businesses increase autonomous expenditures,driving output well above potential.Describe,in detail,how monetary policy might react to minimize the increase in inflation.

AD - AS Shocks -On the graph above,suppose the economy is at point F when there is a temporary negative supply shock.The new long-run equilibrium is at point ________.

When a temporary shock in the economy involves a restriction in supply ________.

AD - AS Shocks -On the graph above,a movement from point ________ to point ________ might represent a positive supply shock.

Suppose there is a temporary supply shock because of a war in the Middle East,then ________.

If a new government adopted some ill-advised regulations causing the economy to be less efficient ________.

A fall in import prices or an increase in productivity ________.

What is the main difference between a temporary and permanently negative supply shock?

AD - AS Shocks -On the graph above,suppose the economy has moved from point H to point G.If the shock was temporary and inflation expectations are adaptive,the economy will next ________.

AD - AS Shocks -On the graph above,a movement from point ________ to point ________ might represent a negative supply shock.

Which of the following is (are) linked to (an) adverse supply shock(s) ?

AD - AS Shocks -On the graph above,suppose the economy is at point F when there is a temporary positive supply shock.The new long-run equilibrium is at point ________.

AD - AS Shocks -On the graph above,a movement from point to point might represent a positive supply shock.

AD - AS Shocks -On the graph above,a movement from point to point might represent a negative supply shock.