Author Question: How do you think each of the following would affect the unemployment rate? a. The Fed increases the ... (Read 45 times)

roselinechinyere27m · **on:** Jun 30, 2018

How do you think each of the following would affect the unemployment rate?
a. The Fed increases the money supply and engineers an unexpected increase in the rate of inflation from 2 percent to 5 percent.
b. The rate of inflation remains stable at 2 percent over a five-year period, as expected.
c. There is an unexpected decrease in the rate of inflation from 10 percent to 3 percent.

Question 2

An increase in the supply of U.S. dollars in the foreign exchange market would cause the dollar to appreciate with respect to other currencies.
a. True
b. False
Indicate whether the statement is true or false

Fayaz00962 · **Reply #1 on:** Jun 30, 2018

Answer to Question 1

a. An unanticipated increase in the rate of inflation should result in lower real wages and a lower unemployment rate in the short run.
b. Because the actual rate of inflation matches the expected rate, the unemployment rate won't change.
c. This unexpected reduction in inflation will raise real wages and cause the unemployment rate to rise in the short run.

Answer to Question 2

False