BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

Solutions

Chapter
Section
BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

From one year to the next, inflation falls from 5 to 4 percent, while unemployment rises from 6 to 7 percent. Which of the following events could be responsible for this change?

a. The central bank increases the growth rate of the money supply.

b. The government cuts spending and raises taxes to reduce the budget deficit.

c. Newly discovered oil reserves cause world oil prices to plummet.

d. The appointment of a new Fed chair increases expected inflation.

To determine

Reason for changes in inflation and unemployment.

Explanation

Option (b):

The government reducing the budget deficit by increasing the tax and reducing its expenditure is the reason for the decrease in the inflation from 5 to 4 percent and an increase in the unemployment from 6 to 7 percent. When the government increases the tax to reduce the budget deficit, it reduces the inflation rate from 5 to 4. The inflation and unemployment have a negative relationship. Therefore, when there is a decrease in 1 unit of inflation, it will lead to an increase in the unemployment at one unit (6 to 7). Thus, option “b” is correct.

Option (a):

The central bank increases the growth rate of the money supply, which increases the inflation rate and decreases the unemployment rate...

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

Why must researchers document their sources meticuousIy?

Essentials of Business Communication (MindTap Course List)

What is inflation and what causes it?

Essentials of Economics (MindTap Course List)

What is collusion?

Accounting Information Systems

RATES OF RETURN AND EQUILIBRIUM Stock Cs beta coefficient is bC = 0.4, and Stock Ds is bD = 0.5. (Stock Ds beta...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)