Asked by Nicole Nothstine on Jun 11, 2024
Verified
What would a central bank need to do to reverse the effects of a favorable supply shock on inflation? What would its reaction do to the unemployment rate in the short run?
Favorable Supply Shock
An unexpected event that increases the availability of a good or service, thus lowering its price and benefiting consumers.
Inflation
The measure of how quickly the general pricing for products and services advances, decreasing monetary purchasing power.
Unemployment Rate
The ratio of individuals without employment, yet are actively pursuing job opportunities in the labor force.
- Examine the importance of supply shocks and central bank strategies in influencing economic stability in both the short and long term.
- Comprehend how the growth rate of the money supply influences short-term unemployment and inflation rates, as depicted by the Phillips curve.
Verified Answer
DL
Dipak LairenmayumJun 12, 2024
Final Answer :
It would increase the money supply growth rate. The unemployment rate would fall further below its natural rate.
Learning Objectives
- Examine the importance of supply shocks and central bank strategies in influencing economic stability in both the short and long term.
- Comprehend how the growth rate of the money supply influences short-term unemployment and inflation rates, as depicted by the Phillips curve.