It Is Difficult for Policy Makers to Adopt an Expansionary

question 68

Multiple Choice

It is difficult for policy makers to adopt an expansionary policy as a response to a recession caused by a negative supply shock because an:

• A)expansionary policy leads to an increase in aggregate demand, which causes aggregate output to increase, causing inflation to rise.
• B)expansionary policy results in a shift of the aggregate demand curve to the left, as a result of which real output decreases.
• C)expansionary policy leads to an increase in aggregate demand, as a result of which the price level decreases.
• D)expansionary policy results in a shift of the long-run aggregate supply curve to the left, as a result of which the price level decreases.
• E)expansionary policy results in a shift of the long-run aggregate supply curve to the right, as a result of which the price level decreases.

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Definitions:

Compounded Annually

The process of earning interest on both the initial principal and the accumulated interest from previous periods, calculated once per year.

Compounded Monthly

A calculation method for interest where the interest earned is added to the principal at the end of each month, causing subsequent interest to be based on the increased balance.

Effective Annual Rate

The real interest rate on an investment or loan, considering the effects of compounding over a year.

Effective Annual Rate

The yield on a loan or investment taking into account the impact of compounding throughout a year.