c. If monetary and fiscal policy do not react to the shock, which of the following best describes the economy's adjustment process to its new long-run equilibrium? a. At E, the unemployment rate is 6 percent. This isthe NAIRUunemployment.b. A negative aggregate supply shock now shifts the AS curve toAS'. At E₁ the unemployment rate is 7.5 percent. At E₁ there ispositive cyclical unemployment.c. If monetary and fiscal policy do not react to the shock, which ofthe following best describes the economy's adjustment process toits new long-run equilibrium?A. At E₁ the economy is experiencing inflation. Thisincreases labour costs, shifting the AS' to AS, andreturning the economy to full employment at Y*(E).B. At E₁ the economy is experiencing recession. Thisincreases labour costs, shifting the AS to AS', andreturning the economy to full employment at Y*(E).C. At E₁ the economy is experiencing inflation. Thisdecreases labour costs, shifting the AS' to AS, andreturning the economy to full employment at Y*(E).D. At E₁ the economy is experiencing recession. This lowerswage demands, shifting the AS' to AS, and returning theeconomy to full employment at Y*(E).CDPrice LevelE₁EoY*Real GDPAS'IASAD

Inflation is the rate at which the general level of prices for goods and services rises, resulting…

Answered: c. If monetary and fiscal policy do not…

c. If monetary and fiscal policy do not react to the shock, which of the following best describes the economy's adjustment process to its new long-run equilibrium?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

c. If monetary and fiscal policy do not react to the shock, which of the following best describes the economy's adjustment process to its new long-run equilibrium?

a. At E, the unemployment rate is 6 percent. This is
the NAIRU
unemployment.
b. A negative aggregate supply shock now shifts the AS curve to
AS'. At E₁ the unemployment rate is 7.5 percent. At E₁ there is
positive cyclical unemployment.
c. If monetary and fiscal policy do not react to the shock, which of
the following best describes the economy's adjustment process to
its new long-run equilibrium?
A. At E₁ the economy is experiencing inflation. This
increases labour costs, shifting the AS' to AS, and
returning the economy to full employment at Y*(E).
B. At E₁ the economy is experiencing recession. This
increases labour costs, shifting the AS to AS', and
returning the economy to full employment at Y*(E).
C. At E₁ the economy is experiencing inflation. This
decreases labour costs, shifting the AS' to AS, and
returning the economy to full employment at Y*(E).
D. At E₁ the economy is experiencing recession. This lowers
wage demands, shifting the AS' to AS, and returning the
economy to full employment at Y*(E).
CD
Price Level
E₁
Eo
Y*
Real GDP
AS'
IAS
AD

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