Question

1a. While the first cases of COVID-19 were identified in January, Congress and the Federal Reserve did not act until mid March. During the time in between, the public was already reacting to crisis as it unfolded while waiting to see what the government reaction would be. How would the public’s reaction be expressed using what you know from the quantity theory of money?

a. the rate of velocity would rise.

b. the real output growth rate would rise.

c. the rate of velocity would fall.

d. the inflation rate would rise.

1b. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to output growth in the short run?

a. It will increase.

b. It will become more difficult to predict.

c. It will decrease.

d. It will remain unchanged.

1c. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to output growth in the long run?

a. It will decrease.

b. It will become more difficult to predict.

c. It will remain unchanged.

d. It will increase.

1d. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to the inflation rate in the short run?

a. It will remain unchanged.

b. It will increase.

c. It will become more difficult to predict.

d. It will decrease.

1e. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to the inflation rate in the long run?

a. It will remain unchanged.

b. It will increase.

c. It will become more difficult to predict.

d. It will decrease.

1f. Assuming the economic response to COVID-19 is a real negative supply shock, in response the Federal Reserve increases the money supply growth. What causes the inflation rate to increase as a result?

a. Both the real shock and the increase in money growth.

b. Only the Fed’s actions to increase in money growth.

c. Some reason other than the real shock and the increase in money growth.

d. Only the public’s pessimism about the real shock.

Answer 1

1a. While the first cases of COVID-19 were identified in January, Congress and the Federal Reserve did not act until mid March. During the time in between, the public was already reacting to crisis as it unfolded while waiting to see what the government reaction would be. How would the public’s reaction be expressed using what you know from the quantity theory of money?

a. the rate of velocity would rise.

b. the real output growth rate would rise.

c. the rate of velocity would fall.

d. the inflation rate would rise.

Answer - OPTION D is correct because ,Accordingly quantity theory money provides the relationship between the money supply and price level of goods and service . Incovid 19 crisis the public reaction be expressed by the rise of inflation as there is supply of money but the supply of goods and service in the prodcution is limited due to lockdown worldwide causing labors and worker to stop the whole processes till the covid19 pandemic is outbreaking . This causing the inflation rate to rise higher then the normal level .Thereofre OPTION D is the correct answer and it correctly express the public reaction defined from the quanitiy theory of money .

1b. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to output growth in the short run?

a. It will increase.

b. It will become more difficult to predict.

c. It will decrease.

d. It will remain unchanged.

Answer -OPTION C is correct , because the unexpected covid19 had a very negative demand shock which will either shift the aggregate demand curve or the short rrun aggregate supply curve in AD-AS model in short run .This will cause decrease in the growth output by the level down of GDP and unemployement also .Thereofre in response the output growth will decrease

HENCE OPTION C is correct IT WILL SECREASE.

1c. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to output growth in the long run?

a. It will decrease.

b. It will become more difficult to predict.

c. It will remain unchanged.

d. It will increase.

Answer -OPTION C is correct

In economic there is a pprocah or practical assumption of LONG RUN SELF ADJUSTMENT MECHANISM.This mechanism bring back the economy from a negative shock to its normal position.This assumption is based on the fact that economy can self correct and only this problem poses in short run where it increase the inflation rate and unemployemnt .This approach is about PRICE ADJUSTMENT.It means that price will adjust and bring back to normality to long run equilibrium.output growth rate due to change in agrregate demand curve exist in short run and had a chance to fully adjust in long run .The output growth will hence remian unchanged in the long run .

1d. Assuming the economic response to COVID-19 is a real negative demand shock, what will happen to the inflation rate in the short run?

a. It will remain unchanged.

b. It will increase.

c. It will become more difficult to predict.

d. It will decrease.

Answer -OPTION B is CORRECT

In short run , the inflation rate is high causing the price level of good and srrvice to increase as the demand shock is negative and supply is less. This is posed for short run and causes the GDP is fall down . but in the loing run it adjust back to normal.Therefore the infaltion rate will be high in response to COVID 19 .

Therefore OPTION B is correct .it will INCREASES.

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