Question

Which of the following is the primary policy prescription of the environmental approach to economic development?

		Foreign aid
		Removal of tariffs
		Pursuit of "green" policies
		Institutional reform

If there is no change in government policies, the long-run adjustment to a negative supply shock results in

		the short-run aggregate supply curve shifting down.
		unemployment rising.
		workers being willing to accept higher wages.
		the price level rising.

Answer 1

1. (c) Pursuit of "green" policies.

The environmental approach to economic development calls for sustainable development and regulating environmental destruction as a consequence of economic activities. A Green Policy includes the commitment to sustainability and environmental management that businesses must adhere to.

2. (d) the price level rising.

Long run self adjustment is the process through which an economy will return to full employment output even without government intervention. A negative supply shock will output more costly for producers. At the old price level, AD would exceed SRAS. This puts upward pressure on the price level until the economy assumes a new short-run equilibrium at a higher price level and lower output. Because output has decreased, the unemployment rate has increased.