If the Fed Wants to Reverse the Effects of a Favorable

question 222

Multiple Choice

If the Fed wants to reverse the effects of a favorable supply shock on the inflation rate, it should

• A)increase the money supply growth rate which also moves unemployment closer to its natural rate.
• B)increase the money supply growth rate, but this moves unemployment further from its natural rate.
• C)decrease the money supply growth rate which also moves unemployment closer to its natural rate.
• D)decrease the money supply growth rate, but this moves unemployment further from its natural rate.

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Definitions:

National Income

The total amount of money earned within a country, including wages, rent, interest, and profits.

U.S. GDP

The total monetary value of all goods and services produced within the United States in a specific time period.

U.S. GNP

Gross National Product of the United States, a measure of economic performance that includes the value of all goods and services produced by the nation's residents, regardless of the production location.

Income Earned

Income earned refers to money received from labor, investments, or any other source as compensation for employment or investment.