Author Question: Suppose oil prices suddenly begin to rise and the Fed announces that the increase in oil prices are ... (Read 87 times)

ssal · **on:** Jun 30, 2018

Suppose oil prices suddenly begin to rise and the Fed announces that the increase in oil prices are not expected to generate excessive inflation.

If the Fed is incorrect in its assumption that rising oil prices will not generate excessive inflation and the inflation rate increases before the Fed takes corrective action, then other things equal, this would result in ________ and ________. A) the IS curve shifting to the right; a movement up the Phillips curve
B) the IS curve shifting to the left; a movement down the Phillips curve
C) the MP curve shifting up; a movement up the Phillips curve
D) the MP curve shifting down; a movement down the Phillips curve

Question 2

Which of the four government policies to stimulate saving is essential? That is, which policy can on its own, regardless of the other policies, determine the level of the national saving rate?

What will be an ideal response?

kaylee05 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

A

Answer to Question 2

Reduce budget deficits. A higher tax on consumption will increase national saving only if the government doesn't spend all of the increased tax revenue. Tax incentives that reward private saving directly, or encourage private saving by increasing the return on assets, will raise national saving only if government spending is reduced to correspond to the decrease in tax revenues. If nothing is done to promote private saving, national saving can be raised by lowering the government's budget deficit.