SOLVED

11) In the mid-to-late 1990s, changes in the health care industry, substantially reduced health care costs relative to other goods and services. Which of the following is an appropriate description of the mechanism behind this supply shock? A) The AS curve likely shifted to the right which likely explains the short-run fall in unemployment B) The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s C) A positive output gap would have resulted in the short-run but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s D) all of the above E) none of the above 12) In the 1960s and 1970s, research funding by the U.S. government and some universities led to revolutionary advances in network computing. These advances in communication and network technology remained largely isolated to governmental and academic use. By the mid-to-late 1990s, the Internet began to be widely adopted with massive increases in productivity (which journalists dubbed the “new economy”). Which of the following is an appropriate description of the mechanism behind this supply shock? A) Since this “new economy” was a new paradigm, the transition from a pre-internet to an internet economy was initially costly. Thus, the AS curve likely shifted to the left and unemployment likely increased in the short-run B) The ensuing increase in productive capacity led to the rightward shift of the LRAS which is a likely explanation for the protracted decline in the unemployment rate of the 1990s C) A negative output gap would have resulted in the short-run, but it was eventually closed by a rightward shift of the LRAS which is a likely explanation for the protracted decline in the inflation rate of the 1990s D) all of the above E) none of the above 13) What is the main difference between a temporary and permanently negative supply shock? A) The real interest rate immediately decreases after a temporary shock while it eventually increases after a permanent shock B) Output increases right away after a temporary shock but the impact does not last whereas for a permanent shock output permanently decreases C) A temporary shock will see a permanent increase in inflation while inflation will only rise temporarily after a permanent shock D) all of the above E) none of the above 14) On the graph above, a movement from point ________ to point ________ might represent a positive supply shock. A) F; I B) H: G C) H: F D) F; G E) none of the above 15) On the graph above, a movement from point ________ to point ________ might represent a negative supply shock. A) H: G B) H: F C) F; I D) F; G E) none of the above 16) On the graph above, suppose the economy is at point F when there is a temporary negative supply shock. The new long-run equilibrium is at point ________. A) H B) I C) F D) G E) none of the above 17) On the graph above, suppose the economy is at point F when there is a temporary positive supply shock. The new long-run equilibrium is at point ________. A) H B) I C) F D) G E) none of the above 18) On the graph above, suppose the economy is at point F when there is a permanent positive supply shock. The new long-run equilibrium is at point ________. A) F B) H C) I D) G E) none of the above 19) On the graph above, suppose the economy has moved from point H to point G. If the shock was temporary and inflation expectations are adaptive, the economy will next ________. A) return to point H B) move to point F C) move to a point between points G and H D) remain at point G E) none of the above 20) Describe how changes in expected inflation impact an economy in the wake of a temporary negative supply shock. 21) The Volcker Disinflation (1980-1986) was costly in terms of output and unemployment. Would it not have been better to reduce inflation with a positive supply shock, rather than a negative demand shock?