Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock
What will be an ideal response?
The supply shock causes the short-run aggregate supply curve to shift up. The increase in inflation causes output to fall. Since higher-than-expected inflation is observed, expected inflation rises. At the same time, the negative output gap means there is less upward pressure on wages and prices. Moreover, the shock is now over and not expected to repeat. Thus, the second-round increase in inflation is smaller than expected, so expected inflation now adjusts downward, as observed inflation declines, until the output gap is eliminated.
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“Never put all your eggs in one basket.” This saying refers to the concept of
A. averaging. B. market timing. C. diversification. D. leveraging.
Conglomerate mergers increase concentration in an industry
Indicate whether the statement is true or false
The demand curve for labor shows what?
a. The demand for labor is immune to wage pressures. b. There is a negative relationship between wage and quantity. c. The supply of labor is higher at higher wage levels. d. There is a positive relationship between wage and quality.
Government spending increases by $80 billion and the equilibrium level of output increases by $320 billion. The government spending multiplier
A. is 4. B. is 5. C. is 6. D. cannot be determined from this information, because the MPC is not given.