When They Are Confronted with an Adverse Shock to Aggregate

question 23

Multiple Choice

When they are confronted with an adverse shock to aggregate supply,policymakers face a difficult choice in that

• A)if they contract aggregate demand,the unemployment rate will increase further.
• B)if they expand aggregate demand,the inflation rate will increase further.
• C)they face a less favorable trade-off between inflation and unemployment than they did before the shock.
• D)All of the above are correct.

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Definitions:

FICA Social Security

A U.S. government program funded through payroll taxes that provides benefits to retirees, disabled individuals, and survivors.

FICA Medicare

FICA Medicare refers to the portion of the Federal Insurance Contributions Act tax that is designated for Medicare, providing health insurance for individuals over 65 and some younger people with disabilities.

Gross Pay

The total amount of money earned by an employee before any deductions or taxes are applied.

Regular Rate

The hourly pay rate that is used to calculate overtime pay for non-exempt employees according to the Fair Labor Standards Act (FLSA).