Chapter 24: Q.6 (page 655)
Why do temporary negative supply shocks pose a dilemma for policymakers?
Short Answer
Negative supply shocks are destructive to the economy which is a dilemma for policymakers
Chapter 24: Q.6 (page 655)
Why do temporary negative supply shocks pose a dilemma for policymakers?
Negative supply shocks are destructive to the economy which is a dilemma for policymakers
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Get started for freeIt can be an interesting exercise to compare the purchasing power of the dollar over different periods in history. Go to https://www.bls.gov/data/inflation_ calculator.htm to find the inflation calculator. Use this calculator to answer the following questions. a. If a new home cost \(125,000 in 2017, what would it have cost in 1950? b. The average annual household income in 2017 was about \)50,000. What would this income have been in 1945? c. An average new car cost about $25,000 in 2017. What would this car have cost in 1945?
d. Using your results from parts (b) and (c), did the purchase of a new car consume more or less of an average household’s income in 2017 than in 1945?
In 2003, as the U.S. economy finally seemed poised to exit its ongoing recession, the Fed began to worry about a “soft patch” in the economy, in particular the possibility of a deflation. As a result, the Fed proactively lowered the federal funds rate from 1.75% in late 2002 to 1% by mid-2003, the lowest federal funds rate on record up to that point in time. In addition, the Fed committed to keeping the federal funds rate at this level for a considerable period of time. This policy was considered highly expansionary and was seen by some as potentially inflationary and unnecessary.
Suppose the current administration decides to decrease government expenditures as a means of cutting the existing government budget deficit.
. Why do activists believe that the economy’s selfcorrecting mechanism works slowly?
What nonconventional monetary policies shift the aggregate demand curve, and how do they work?
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