If a Negative Supply Shock Is Associated with a Decline

question 34

Multiple Choice

If a negative supply shock is associated with a decline in potential output, policymakers need to:

• A)raise the real interest rate by even less than they would in the case of a recessionary gap.
• B)raise the real interest rate by even more than they would in the case of a recessionary gap.
• C)raise the real interest rate by the same amount as they would in the case of a recessionary gap.
• D)not shift the monetary policy reaction curve.

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Definitions:

Antibodies

Proteins produced by the immune system that recognize and neutralize foreign substances such as bacteria and viruses.

Fetus

A developing human from roughly the eighth week after conception until the moment of birth.

Rh Incompatibility

A condition occurring when a pregnant woman's Rh-negative blood type is incompatible with her Rh-positive baby, potentially leading to health problems in the newborn.

Rh Factors

Antigens present on the surface of red blood cells that can cause a reaction between the blood of the mother and fetus, important in pregnancy and blood transfusion compatibility.