Author Question: If the current unemployment rate is 5, under which of the following circumstances would you expect ... (Read 21 times)

Deast7027 · **on:** Jun 29, 2018

If the current unemployment rate is 5, under which of the following circumstances would you expect the Fed to use expansionary monetary policy?

A) if the inflation rate is below 5
B) if the natural rate of unemployment is above 5
C) if the natural rate of unemployment is below 5
D) if the inflation rate is above 5

Question 2

What are the key differences between how we illustrate an expansionary fiscal policy in the basic aggregate demand and aggregate supply model and in the dynamic aggregate demand and aggregate supply model?

What will be an ideal response?

joshraies · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

C

Answer to Question 2

In the basic aggregate demand and aggregate supply model, expansionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve, with the short-run aggregate supply curve and long-run aggregate supply curve remaining stationary. The dynamic aggregate demand and aggregate supply model takes into account the economy experiencing continuing inflation from year to year and the economy experiencing long-run growth. In the dynamic model, expansionary fiscal policy is illustrated by a rightward shift of the aggregate demand curve, a rightward shift of the short-run aggregate supply curve, and a rightward shift of the long-run aggregate supply curve.