If a Negative Supply Shock Is Associated with a Decline

question 79

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:

Actual Value

The true or real value of something, as opposed to an estimated or perceived value.

Forecast Value

A predicted numerical value that represents the expected outcome of a variable of interest in future periods, based on past and current data trends.

Weighted Moving Average

A calculated average of data points where different data points are given different weights, often used in technical analysis to smooth out price data.

Three-period

Pertains typically to a moving average or other statistical calculation considering data from three specific time periods for analysis or forecasting.