Suppose there is a report that the unemployment rate unexpectedly ...

[futuristic]

Suppose there is a report that the unemployment rate unexpectedly increased in the previous month. To what extent will the expected central bank response to this news affect how stock prices will respond to this report of a higher than expected unemployment rate? Explain.
 
  What will be an ideal response?

Question 2

An increase in the money supply must cause which of the following?
 
  A) a leftward shift in the IS curve
  B) a reduction in the interest rate and ambiguous effects on investment
  C) an increase in investment and a rightward shift in the IS curve
  D) no change in the interest rate if investment is independent of the interest rate
  E) no change in output if investment is independent of the interest rate

[at]

Answer to Question 1

The effect on stock prices will be ambiguous, all else fixed. What the Fed is expected to do in response can change this. If the Fed is expected to act to keep interest rates constant, Y will fall and stock prices will fall. If the Fed is expected to offset any output effects by reducing rates, stock prices will rise.

Answer to Question 2

E

[futuristic]

Correct answers!

[at]

Great! Please up vote