Question 1
Figure 17-1
Refer to Figure 17-1. Suppose that the economy is currently at point A, and the unemployment rate at A is the natural rate. What policy would the Federal Reserve pursue if it wanted the economy to move to point C in the long run?
◦ Buy treasury bills.
◦ Sell treasury bills.
◦ Lower the discount rate.
◦ Increase the money supply.
◦ No policy will move the economy to point
C in the long run.
Question 2
Figure 17-1
Refer to Figure 17-1. Suppose that the economy is currently at point A on the short-run Phillips curve in the figure above, and the unemployment rate at A is the natural rate. If the economy was to move to point B, which of the following must be true?
◦ The economy is producing a level of GDP equal to potential GDP.
◦ Aggregate demand must have increased.
◦ Equilibrium GDP at point
B must be below potential GDP.
◦ The Fed conducted expansionary policy to cause the move.
◦ The Fed purchased treasury bills to cause the move.
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