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.