Why Is Monetary Policy Not Fully Effective in Combating a Negative

question 12

Multiple Choice

Why is monetary policy not fully effective in combating a negative supply shock?

• A) The Fed has no tools that stimulate an economy after a negative supply shock.
• B) When countering a negative supply shock,Fed action will cause deflation.
• C) When countering a negative supply shock,Fed action will raise unemployment.
• D) When countering a negative supply shock,Fed action will raise inflation.

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Definitions:

Blue-Chip Companies

Businesses recognized for their financial stability, reliability, ability to generate steady profit, and having a long history of paying dividends.

Emerging Companies

Businesses in the early stages of development that have high growth potential but also face higher risks and uncertainties.

Bad News Earnings

Reports of lower than expected earnings, often leading to a negative reaction in the stock market and a decrease in company’s share price.

Negative Earnings Surprise

An event where a company's reported earnings are below the expectations of analysts, often leading to a decline in its stock price.