Consider a standard AD-AS model. If the central bank responds relatively aggressively to inflation being above target, a temporary adverse supply shock has a relatively small effect on output.Group of answer choicesTrueFalse

Consider an AD-AS model with AD curve 𝑌 − 𝑌 ∗ = −𝛼𝛾(𝜋 − 𝜋 ∗ ) + 𝜀" and AS curve𝜋 = 𝜋 # + 𝜙𝛽(𝑌 − 𝑌 ∗ ) + 𝜀$ with parameter values 𝛼 = 𝜙 = 0.5 and 𝛾 = 𝛽 = 2 andwith inflation target 𝜋 ∗ = 0.03 and potential output normalised to 𝑌 ∗ = 1. Startingfrom a long-run equilibrium with 𝜋 # = 𝜋 ∗ suppose there is a temporary supply shock𝜀$ = −0.06. Which of the following is TRUE?a. In the short run, inflation is 1%b. In the long run, inflation is 0%c. In the short run, output is 6% below potentiald. In the short run output is 3% above potential

In the AD-AS (Aggregate Demand-Aggregate Supply) model, what is the likely outcome if the central bank implements an expansionary monetary policy?A.The aggregate demand (AD) curve shifts to the right, leading to increased real GDP and potential inflation.B.The aggregate demand (AD) curve shifts to the right, resulting in increased real GDP, but the impact on inflation depends on the position of the short-run aggregate supply (SRAS) curve.C.The aggregate supply (AS) curve shifts to the right, causing increased real GDP and lower inflation.D.The short-run aggregate supply (SRAS) curve shifts to the right, causing a decrease in real GDP and potential deflation.SUBMIT ANSWER

If policymakers attempt to offset an adverse inflation shock with monetary _____, the resulting long-run equilibrium will be at _____ inflation rate compared with allowing the self-correcting mechanism to return the economy to potential output.Group of answer choiceseasing; a lowertightening; a highertightening; a lowereasing; a higher

Use the rule-of-thumb to predict how the Central Bank would want to change its funds rateand the real interest rate targets for each of the following scenarios if its estimate of theneutral real interest rate is 2%.a. A recession hits the economy leading output to be 0.75% below potential output andinflation to fall to 1%.b. An increase in consumer and business confidence pushes the economy to producingoutput at 2% above potential output while inflation rises to 3.5%c. Show the effect of b) in an AD-AS diagram

In the AD-AS model(aggregate demand-aggregate supply), what is expected to happen if the government adopts expansionary fiscal policy while the central bank adopts contractionary monetary policy?A.Inflation rises in the short run，output falls in the long runB.Deflation rises in the short run, output rises in the long runC.Inflation rises in the short run, output rises in the long runD.Deflation rises in the short run, output falls in the long run