5. , Assume, while an economy is in long-run equilibrium, an adverse supply shock occured, such as energy prices have incrased. The central bank decides to accommodate this shock and restores the equilibrium quickly. What would be the effect of this policy action on inflation? Explain and illustrate with the help of an AD-AS diagram.

Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter24: The Aggregate Demand/aggregate Supply Model
Section: Chapter Questions
Problem 3SCQ: The short run aggregate supply curve was constructed assuming that as the price of outputs...
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5.
, Assume, while an economy is in long-run equilibrium, an adverse supply shock occured, such
as energy prices have incrased. The central bank decides to accommodate this shock and restores the
equilibrium quickly. What would be the effect of this policy action on inflation? Explain and illustrate
with the help of an AD-AS diagram.
1
Transcribed Image Text:5. , Assume, while an economy is in long-run equilibrium, an adverse supply shock occured, such as energy prices have incrased. The central bank decides to accommodate this shock and restores the equilibrium quickly. What would be the effect of this policy action on inflation? Explain and illustrate with the help of an AD-AS diagram. 1
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