Question

Fill in the blank:

The popping of an asset price bubble causes economic growth to ____ and inflation to ____.

A decrease in money supply growth causes expected inflation to ____ and the SRAS curve to shift to the ____.

Discoveries of new, cheaper sources of energy shift the ____ curve to the ____.

During the Great Depression, the failure of many banks harmed the process of financial intermediation. This was a ____ to the economy.

When a pandemic causes households and firms to cut back on spending, real GDP growth ____ and inflation ____.

Suppose an agrarian economy suffers a drought. This shock causes inflation to ____. If the central bank stimulates economic growth in response to the drought, inflation will ____.

In response to a negative AD shock, the Fed would ____ money supply growth. If the Fed errs and goes too far with its response, interest rates will be too ____.

If a country's exports become more popular in the rest of the world, real GDP growth ____ and inflation ____.

Answer 1

1. Popping of an asset price bubble causes economic growth to fall and inflation to fall. Because fall in asset prices causes fall in general price level which causes economic growth to fall.

2. A decrease in money supply growth causes expected inflation to fall and the SRAS curve to shift to left. Because fall in price level reduces aggregate supply of good and services. It shifts SRAS curve to left . At higher prices , it is less profitable for firm to supply of good and services.

3. Discovery new cheaper sources of energy shift the SRAS curve to right. Because discovery of cheaper source s of energy reduces the cost of production of firms. It will increase the profit of firm. So they will supply of good and services.

4. During ,the Great Depression , the failure of many banks harmed the process of financial intermediation. This was downfall to a economy .   

5. When a pandemic causes households and firms to cut back on spending , real GDP growth falls and inflation to decrease .Because when households and firms reduced their consumption and investment, aggregate demand for good and services decreases. It will shift AD curve to left. It reduces the real GDP and price level( inflation falls).   

6. Suppose an agrarian economy suffers drought. This shock causes inflation to rise. If the central bank stimulates economic growth in response to drought inflation will fall. If an economy suffers drought, it would reduce agricultural goods and output. It reduces the supply of good and services. It would increase the price level. Central bank enacts contractionary monetary policy to reduce money supply and price level. contractionary monetary policy reduces the inflation level.   

7.In response to a negative AD shock , the Fed would increase money supply growth. . If Fed errs and goes far its response , interest rate will be too lower. Negative AD shock causes real GDP to fall. So in order to stabilize the economy, central bank will reduce interest rate to increase money supply to combat negative AD shock.

8. If a country's exports become more popular in rest of the world, real GDP growth will rise and inflation to increase It will increase the export demand. It would increase the net exports of economy. It boosts the aggregate demand in the economy. It causes higher price level.