Why Do Negative Supply Shocks Present Such a Difficulty for the Federal

question 93

Multiple Choice

Why do negative supply shocks present such a difficulty for the Federal Reserve?

• A) the Fed can choose to fight the rising price level,but this will result in lower unemployment.
• B) the Fed can choose to fight the rising unemployment,but this will result in an even lower price level.
• C) the Fed can choose to fight the falling unemployment,but this will result in an even higher price level.
• D) the Fed can choose to fight the rising unemployment,but this will result in an even higher price level.
• E) the Fed can choose to fight the rising unemployment,but this will result in higher taxes.

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Definitions:

Budget Deficit

The financial situation where a government's expenditures exceed its revenues within a specific period, leading to borrowing or debt accumulation.

Tax Revenues

Represents the income that is gained by governments through taxation.

Recession

A phase of short-term economic downturn marked by diminished trade and manufacturing activities, usually recognized by a decrease in GDP for two consecutive quarters.

Automatic Stabilizers

Economic measures and initiatives, like taxation and unemployment insurance, that naturally adapt to mitigate the effects of economic changes without direct action from the government.