When the Economy Is Hit by a Negative Demand Shock

question 55

Multiple Choice

When the economy is hit by a negative demand shock and the central bank pursues policies to increase aggregate demand to its initial level,then

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

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Definitions:

Control Variable

A variable that is kept constant during a research experiment to ensure that any changes observed are due to the independent variable being tested.

Hypothesized Relationship

A proposed connection or association between variables, often suggested as a basis for further empirical investigation.

Subjectivity

The quality of being based on or influenced by personal feelings, tastes, or opinions, as opposed to objective, measurable facts.

Research

is the process of systematically observing reality to assess the validity of a theory.