Author Question: The economy is at the equilibrium shown at point a in the above figure. If the Fed A) sells ... (Read 217 times)

mydiamond · **on:** Jun 29, 2018

The economy is at the equilibrium shown at point a in the above figure. If the Fed

A) sells government securities, the economy moves to an equilibrium at point b.
B) buys government securities, the economy moves to an equilibrium at point c.
C) sells government securities, the economy moves to an equilibrium at point c.
D) buys government securities, the economy moves to an equilibrium at point b.
E) None of the above is correct because the economy will remain at point a if the Fed buys or if the Fed sells government securities.

Question 2

If the Fed raises the inflation rate and initially expected inflation does not change, in the short run the unemployment rate ________ the natural unemployment rate, and in the long run the unemployment rate ________ the natural unemployment rate.

A) is larger than; equals
B) is less than; equals
C) is less than; is larger than
D) is less than; is less than
E) is larger than; is larger than