When the Economy Suffers a Permanent Negative Supply Shock and the Central

question 21

Multiple Choice

When the economy suffers a permanent negative supply shock and the central bank does not respond by changing the autonomous component of monetary policy,then

• A)inflation will be higher.
• B)output will be at its potential.
• C)output will be unchanged.
• D)inflation will be unchanged.
• E)both A and B.

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Definitions:

GAAP

Generally Accepted Accounting Principles, which are a collection of commonly-followed accounting rules and standards for financial reporting.

Research and Development

The investigative activities a business conducts to improve existing products and procedures or to lead to the development of new products and procedures.

Write-down

An accounting procedure reducing the book value of an asset when its market value drops below the recorded cost, resulting in a non-cash expense.

Impaired Asset

An asset that has a market value less than its carrying value on the balance sheet, indicating that it may not generate future benefits worth its listed value.