If the Fed Makes a Credible Announcement That It Will

question 140

Multiple Choice

If the Fed makes a credible announcement that it will now increase the growth of aggregate demand with faster money growth, there will be

• A) an upward shift of the short-run Phillips curve so that there is higher inflation without a decrease in unemployment.
• B) a movement upward along an unchanging short-run Phillips curve so that inflation rises and unemployment decreases.
• C) a rightward shift of the long-run Phillips curve.
• D) no change in inflation or unemployment because the policy is credible and now anticipated.
• E) a leftward shift of the long-run Phillips curve.

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Definitions:

Amygdala

An element of the limbic system in the brain that plays a crucial role in controlling emotions, including reactions to fear and enjoyment.

Hypothalamus

A region of the brain beneath the thalamus, responsible for coordinating both the autonomic nervous system and the activity of the pituitary, controlling body temperature, thirst, hunger, and other homeostatic systems, and involved in sleep and emotional activity.

Frontal Lobe

The part of the brain associated with decision making, problem solving, control of purposeful behaviors, consciousness, and emotions.

Hippocampus

A region of the brain that is associated with memory formation, navigation, and the consolidation of information from short-term to long-term memory.