Economics of Money, Banking and Financial Markets, The, Business School Edition (5th Edition) (What's New in Economics)
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Chapter 24, Problem 8Q
To determine

To Explain:

The types of stabilization approach taken by three different economies hit with the same temporary negative supply shock.

Concept introduction:

Temporary Supply Shock: A supply shock is a sudden increase or decrease in the supply of goods and services in the economy leading to a sudden effect on the economy’s general price level. If due to the supply shock, there is no shift in the long-run aggregate supply curve, then the supply shock is temporary. In case of temporary supply shock, it is the short-run aggregate supply curve that shifts.

Temporary Negative Supply Shock: When the temporary shock takes into account a restriction in supply, this type of supply shock is known as a negative supply shock, and it results in an increase in the commodity prices.

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