Chapter 24, Problem 9Q

To determine

To Explain:

Whether the statement “Policymakers would never respond by stabilizing output in response to temporary positive supply shock” true, false or uncertain.

Concept introduction:

Temporary Supply Shock: A supply shock is a sudden increase or decrease in the supply of goods and services in the economy leading to a sudden effect on the economy’s general price level. If due to the supply shock, there is no shift in the long-run aggregate supply curve, then the supply shock is temporary. In case of temporary supply shock, it is the short-run aggregate supply curve that shifts.

Temporary Positive Supply Shock: When the temporary shock increases the aggregate supply, this type of supply shock is referred to as a positive supply shock.