Essay
The economy of Macroland is initially in long-run equilibrium. A severe drought causes an adverse supply shock. a. What happens to prices and output in the short run?
b. What would happen to prices and output in the long run if there is no policy accommodation?
c. If the Central Bank of Macrol and wants to prevent the short-run changes in price and output, what policy action could it take? How would the results of this policy action differ from the prices and output that would result in the long run with no policy action?
Correct Answer:
Verified
a. In the short run, prices increase and...View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Correct Answer:
Verified
View Answer
Unlock this answer now
Get Access to more Verified Answers free of charge
Q60: Define the terms: i) adverse supply shocks,
Q61: Assume that the long-run aggregate supply
Q62: Okun's law is the _ relationship between
Q63: The dilemma facing the Federal Reserve in
Q64: The long-run aggregate supply curve is vertical
Q66: Starting from long-run equilibrium, without policy intervention,
Q67: How does recession occur? What is a
Q68: When the French money supply was reduced
Q69: What is stabilization policy?
Q70: A central bank reduces the money supply