Which of the following would be represented by a positive value of the random supply shock, $\nu$_t? A) an irrational wave of optimism among investors B) an increase in government spending C) widespread drought leading to large increases in food prices. D) an increase in the central bank's inflation target

Question

Quizplus · Accepted Answer

A positive value of the random supply shock (F1F1F1S1F1F1F10_t) represents a sudden increase in the cost of production, such as a widespread drought leading to large increases in food prices. This would cause a decrease in supply and an upward shift in the supply curve, resulting in a higher equilibrium price and lower equilibrium quantity. Options A, B, and D do not directly relate to a supply shock.

Which of the Following Would Be Represented by a Positive ν\nuν

Which of the Following Would Be Represented by a Positive $\nu$