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:

Alice Paul

A prominent American suffragist and activist who played a key role in the campaign for women’s suffrage, leading to the adoption of the 19th Amendment to the U.S. Constitution.

Fundamentalists

Individuals or groups who strictly adhere to the basic principles of any subject or discipline, often used in the context of religion to describe those who assert the literal interpretation and strict adherence to its doctrines.

Prohibition

The period from 1920 to 1933 in the United States when the manufacture, sale, and distribution of alcoholic beverages were illegal under the 18th Amendment.

Great Depression

A severe worldwide economic downturn that took place during the 1930s, beginning in the United States following the stock market crash of 1929.