Question 1

A favorable supply shock will shift short-run aggregate supply

Accepted Answer

A favorable supply shock will increase the availability of inputs, such as lower energy or commodity prices, leading to a decrease in production costs for firms. As a result, firms can increase output without needing to raise prices for their goods and services. This increases short-run aggregate supply (SRAS) and shifts it to the right, leading to an increase in output and a decrease in prices. Therefore, the correct answer is C, which indicates that a favorable supply shock will shift SRAS to the right, making output rise.

Question 2

If a central bank wants to counter the change in the price level caused by an adverse supply shock,it could change the money supply to shift

Accepted Answer

The answer of If a central bank wants to counter...

Question 3

If there is an adverse supply shock and the Federal Reserve responds by increasing the growth rate of the money supply,then in the short run the Federal Reserve's action

Accepted Answer

An adverse supply shock will cause an increase in prices, resulting in inflation. In response, the Federal Reserve may increase the growth rate of the money supply to stimulate economic activity, which would be expansionary monetary policy. This would increase aggregate demand and lower unemployment but would also push up prices, resulting in higher inflation. Therefore, the Federal Reserve's action would raise inflation but lower unemployment in the short run.

Question 4

A favorable supply shock will cause

Accepted Answer

A favorable supply shock will increase the aggregate supply in the economy, causing a decrease in the price level and an increase in real GDP. This will lead to a decrease in unemployment, represented by a movement down along the short-run Phillips curve. The curve will shift leftward due to the lower unemployment rate, indicating that for any given level of inflation, the economy can now produce more than before.

Question 5

In the United States during the 1970s,expected inflation

Accepted Answer

The 1970s in the United States are known for high inflation rates, with an average rate of 7.5% per year. Therefore, it can be assumed that inflation rose substantially during this period.

Question 6

Which of the following shifts aggregate supply to the right?

Accepted Answer

A decline in the price of imported natural resources reduces production costs, a technological advance increases productivity, and an older labor force that leaves jobs less frequently can stabilize the workforce, all contributing to a rightward shift in aggregate supply.

Question 7

A favorable supply shock will cause inflation to

Accepted Answer

A favorable supply shock will increase the supply of goods and services, causing prices to fall, and shifting the short-run Phillips curve leftward. Therefore, the correct choice is D, which indicates a fall in inflation and a shift of the short-run Phillips curve left.

Question 8

The large increase in oil prices in the 1970s was caused primarily by a(n)

Accepted Answer

The large increase in oil prices in the 1970s was primarily caused by a decrease in the supply of oil. This was due to political events, such as the Arab oil embargo and the Iranian Revolution, which disrupted the flow of oil from major oil-producing countries to the rest of the world. This decrease in supply caused prices to rise due to increased competition among buyers for scarce resources.

Question 9

A central bank that accommodates an aggregate supply shock

Accepted Answer

When a central bank accommodates an aggregate supply shock by increasing the money supply, it leads to higher inflation as more money chases the same amount of goods and services, causing prices to rise.

Question 10

A favorable supply shock will cause the price level

Accepted Answer

A favorable supply shock increases aggregate supply, leading to lower prices and higher output.

Question 11

Which of the following is correct if there is a favorable supply shock?

Accepted Answer

A favorable supply shock increases the aggregate supply in the short-run, causing the short-run aggregate supply curve to shift to the right. However, this can also lead to a decrease in the price level and a decrease in inflation, which causes the short-run Phillips curve to shift to the left. Therefore, option C is correct as it considers both the shifts.

Question 12

Suppose that a small economy that produces mostly agricultural goods experiences a year with exceptionally good conditions for growing crops.The good weather would

Accepted Answer

The good weather will increase the productivity of the agricultural sector, leading to an increase in the overall output of the economy. This will shift the short-run aggregate supply curve to the right. However, as output increases, the downward pressure on prices may increase, leading to a lower level of inflation in the short run. This would cause the short-run Phillips curve to shift to the left. Therefore, the correct answer is C.

Question 13

Which of the following would not be associated with a favorable supply shock?

Accepted Answer

A favorable supply shock would typically result in lower production costs and increased output, leading to lower unemployment and an overall increase in economic activity. Option C, stating that the price level rises, is not associated with a favorable supply shock as it would indicate higher inflationary pressures and potentially decrease the overall purchasing power of consumers.

Question 14

Which of the following would cause the price level to fall and output to rise in the short run?

Accepted Answer

A favorable supply shock would cause an increase in aggregate supply, resulting in a decrease in the price level and an increase in output in the short run. An increase in the money supply (choice A) would cause an increase in aggregate demand, which could lead to an increase in both the price level and output in the short run. A decrease in the money supply (choice B) would have the opposite effect, lowering output and potentially causing a decrease in the price level as well. An adverse supply shock (choice C) would cause a decrease in aggregate supply, leading to an increase in the price level and a decrease in output in the short run.

Question 15

If there is a temporary adverse supply shock,then the short-run Phillips curve shifts to the

Accepted Answer

A temporary adverse supply shock, such as an increase in oil prices, shifts the short-run Phillips curve to the right, indicating higher inflation for a given level of unemployment. If the central bank pursues expansionary monetary policy, it can exacerbate inflation, keeping the curve to the right.

Question 16

An adverse supply shock causes output to

Accepted Answer

An adverse supply shock typically reduces output by increasing production costs, leading to higher prices and lower output. To counteract the negative impact on output, a central bank might increase the money supply to stimulate economic activity.

Question 17

If policymakers accommodate an adverse supply shock,then in the short run the unemployment rate

Accepted Answer

Accommodating an adverse supply shock typically involves increasing aggregate demand, which can lower unemployment but increase inflation in the short run.

Question 18

Which of the following would cause the price level to rise and output to fall in the short run?

Accepted Answer

An adverse supply shock would cause a decrease in aggregate supply, leading to higher prices and lower output. An increase in the money supply would lead to an increase in aggregate demand, causing output to increase and prices to rise in the short run. A decrease in the money supply would lead to a decrease in aggregate demand, causing output to decrease and prices to fall in the short run. A favorable supply shock would cause an increase in aggregate supply, leading to lower prices and higher output.

Question 19

If a central bank increases the money supply in response to an adverse supply shock,then which of the following quantities moves closer to its pre-shock value as a result?

Accepted Answer

Increasing the money supply can help boost output by lowering interest rates and encouraging investment and consumption, but it may not necessarily bring the price level back to its pre-shock value due to inflationary pressures.

Question 20

If a central bank decreases the money supply in response to an adverse supply shock,then which of the following quantities moves closer to its pre-shock value as a result?

Accepted Answer

When the central bank decreases the money supply, it reduces the demand for goods and services, leading to a decrease in output. However, the reduction in demand also leads to a decrease in prices, which is the opposite effect of an adverse supply shock. Thus, decreasing the money supply can help move the price level closer to its pre-shock value, but it cannot bring the output back to its original level.

Quiz 22: The Short Run Trade Off Between Inflation and Unemployment: Shifts in the Phillips Curve the Role of Supply Shocks