Explain the role of expectations in determining the impact of a supply shock.
What will be an ideal response?
Student responses will vary but should accurately describe the role of expectations in influencing the impact of a supply shock. The impact of a positive or negative shock depends on expectations. If people expect the change caused by the supply shock to be permanent, the Phillips curve will shift to a new position and stay there until something else changes. However, if the shock is expected to be temporary, the shift in the Phillips curve will only be temporary as well.
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The demand for a good is less price elastic
A) if closer substitutes are available. B) if the good is a luxury rather than a necessity. C) if the share of the good in the average consumer's budget is smaller. D) in the long run than in the short run.
In deriving an LM curve, higher incomes shift the money demand schedule to the ________, yet the unchanged real money supply continues to be equally demanded so long as the interest rate ________
A) right, rises B) right, falls C) left, rises D) left, falls
While on a construction site, Hank, an electrician, slips and falls on an oil-covered floor and injures his back. Hank is not to blame for the accident, and he will keep his job. However, he must stay home for at least two months while he recuperates. Which of the following will pay benefits to Hank while he recovers?
a. Workman’s compensation insurance b. Unemployment insurance c. Secondary insurance d. Liability insurance
Which of the following statements is true of both pollution permits and corrective taxes?
a. Both policies internalize the externality of pollution. b. Both policies require firms to pay for their pollution. c. Both policies lead to the establishment of an equilibrium price of pollution. d. All of the above are correct.