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If the Economy Is at Potential Output and the Fed

question 11

Multiple Choice

If the economy is at potential output and the Fed decreases the money supply, in the short run the likely result will be a(n) _____ in investment and a(n) _____ in consumption.


Definitions:

Long-Run Phillips Curve

A concept suggesting that in the long term, there is no trade-off between inflation and unemployment, as opposed to the short-run Phillips curve.

Disinflation

A reduction in the rate of inflation, characterized by a slowing down in the rate at which prices increase over time.

Short-Run Phillips Curve

A graphical representation that shows an inverse relationship between the rate of inflation and the unemployment rate in the short-term.

World Commodity Prices

The prices of goods such as oil, gold, coffee, etc., that are traded internationally and can fluctuate due to supply and demand dynamics.

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