BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

Solutions

Chapter
Section
BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 22, Problem 1CQQ
Textbook Problem
19 views

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with _____ inflation and _____ unemployment.

a. higher, higher

b. higher, lower

c. lower, higher

d. lower, lower

To determine

Relationship between inflation and unemployment.

Answer to Problem 1CQQ

Option “b” is the correct answer.

Explanation of Solution

Option (b):

When the Federal Reserve increases the money supply and expands aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment.

The increase in money supply reduces the interest rate, increases the inflation, and increases the investment. Increasing investment leads to an increase in the employment and income. When the inflation rate increases, the unemployment rate will decrease. There is a negative relationship between inflation and unemployment. Thus, option “b” is correct.

Option (a):

There is a negative relationship between inflation and unemployment. Therefore when inflation increases, the unemployment rate will fall. Thus, option “a” is incorrect.

Option (c):

When the Federal Reserve increases the aggregate demand, it leads to a higher inflation rate in the economy. Thus, option “c” is incorrect.

Option (d):

When the Federal Reserve increases the money supply and expands the aggregate demand, it moves the economy along the Phillips curve to a point with higher inflation and lower unemployment. The increase in demand will lead to an increase in the price level; ultimately leads to an increase in the inflation rate in the economy. Thus, option “d” is incorrect.

Economics Concept Introduction

Philips curve: Phillips curve shows the inverse relationship between inflation and unemployment.

Inflation: Inflation refers to the tendency of increasing price.

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 Textbook Solutions

Find more solutions based on key concepts
Show solutions add
Whats the difference between a call for sinking fund purposes and a refunding call?

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)

What elements of RD activities does a company include in RD costs?

Intermediate Accounting: Reporting And Analysis

CAPITAL BUDGETING CRITERIA: ETHICAL CONSIDERATIONS A mining company is considering a new project. Because the m...

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

What is the Laffer curve? What are the important implications of the Laffer curve?

Economics: Private and Public Choice (MindTap Course List)

What are automatic stabilizers? Explain their major advantage.

Macroeconomics: Private and Public Choice (MindTap Course List)