Policy makers are said to "accommodate" an adverse supply shock if they ?
Correct answer: D. respond to the adverse supply shock by increasing aggregate demand, which further raises prices
- A. fail to respond to the adverse supply shock and allow the economy to adjust on its own.
- B. respond to the adverse supply shock by decreasing aggregate demand which lower prices
- C. respond to the adverse supply shock by decreasing short run aggregate supply
- D. respond to the adverse supply shock by increasing aggregate demand, which further raises prices
Explanation
Accommodating an adverse supply shock means expanding aggregate demand, often through monetary or fiscal policy. This supports output but adds further upward pressure to the price level, as stated in option d.
Report an error
The more specific you are, the faster it gets fixed. A source beats an opinion.
Prefer email? [email protected]
About Macroeconomics
The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
Practise Macroeconomics
1,499 free Macroeconomics MCQs from Economics, each with the correct answer and an explanation. Unlimited attempts, no account needed.
Discussion
Stuck on an option, or know a faster way to get there? Ask or explain it here.
No comments yet. Be the first to explain this one.
Exams that ask Economics questions like this
Economics is on 3 papers prepared for on TestUstad, and all of them draw the same bank, so this question is worth knowing for every one of them.
More Macroeconomics questions
According to the interest rate effect aggregate demand slopes downward (negatively) because ?
Which of the following is not a reason why the aggregate demand curve slopes downward ?
According to the wealth effect aggregate demand slopes downward (negatively) because ?
Refers to Exhibit 4. Suppose the economy is operating in a recession such as point B in Exhibit 4. If policy makers allow the economy to adjust to the long run natural rate on its own, ?
Which of the following events shifts the short run aggregate supply curve to the right ?
Suppose the economy is initially in long run equilibrium Then suppose there is a drought that destroys much of the wheat crop if policymakers allow the economy to adjust to long-run equilibrium on its own, according to the model to aggregate demand and aggregate supply what happens to prices and output in the long run ?