Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 24: Q. 9 (page 655)

“Policymakers would never respond by stabilizing output in response to a temporary positive supply shock.” Is this statement true, false, or uncertain? Explain your answer.

Short Answer

Expert verified

The statement is uncertain.

Step by step solution

01

Step 1. Introduction

Inflation is defined as a steady increase in the prices of goods and services within an economy over time.

02

Step 2. Explanation

Because the extent of the brief positive supply shock affects the assertion, it is ambiguous. If it is significant enough, it can lower inflation or raise output, but this will increase inflation variability and uncertainty, destabilising the economy. As a result, policymakers' responses are influenced by the magnitude of the brief positive supply shock.

03

Step 3. Conclusion

Hence, the statement is uncertain.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Suppose three economies are hit with the same temporary negative supply shock. In country A, inflation initially rises and output falls; then inflation rises more and output increases. In country B, inflation initially rises and output falls; then both inflation and output fall. In country C, inflation initially rises and output falls; then inflation falls and output eventually increases. What type of stabilization approach did each country take?

During the global financial crisis, how was the Fed able to help offset the sharp increase in financial frictions without the option of lowering interest rates further? Did the Fed’s plan work?

How does the policy rate hitting a floor of zero lead to an upward-sloping aggregate demand curve?

What does it mean when we say that the inflation gap is negative?

Go to the St. Louis Federal Reserve FRED database, and find data on the personal consumption expenditure price index (PCECTPI), the unemployment rate (UNRATE), and an estimate of the natural rate of unemployment (NROU). For the price index, adjust the units setting to “Percent Change From Year Ago.” For the unemployment rate, adjust the frequency setting to “Quarterly.” Select the data from 2000through the most current data available, download the data, and plot all three variables on the same graph. Using your graph, identify periods of demand-pull or costpush movements in the inflation rate. Briefly explain your reasoning.
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free