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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

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

From one year to the next, inflation rises from 4 to 5 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

The reason for changes in inflation and unemployment.

Explanation

Option (d):

The appointment of a new Fed chair increases the expected inflation, which is responsible for the rise in the inflation from 4 to 5 percent and also in the unemployment from 6 to 7 percent. Thus, option “d” 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.  Thus, option “a” is incorrect...

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