If most shocks to the economy are ________ shocks,then ________.

Question

Quizplus · Accepted Answer

Most shocks to the economy are temporary aggregate supply shocks, which means that inflation stabilization policy will not stabilize activity in the short-run. This is because these shocks affect the economy's productive capacity, leading to a tradeoff between inflation and output stabilization in the short run. However, in the long run, output stabilization policy can be consistent with no change in inflation, as the economy adjusts to the shock and returns to its natural level of output. Option A is incorrect because aggregate demand shocks also affect output and inflation in the short run, and there is a tradeoff between stabilizing both. Option C is partially correct, but it only applies to temporary supply shocks, not aggregate demand shocks. Option D is incorrect because it includes all options without considering which one is correct. Option E is incorrect because there is a correct answer.

If Most Shocks to the Economy Are ________ Shocks,then ________

If Most Shocks to the Economy Are Shocks,then