In the Long Run, If the Fed Decreases the Rate

question 318

Multiple Choice

In the long run, if the Fed decreases the rate at which it increases the money supply,

• A)inflation will be lower.
• B)unemployment will be higher.
• C)real GDP will be lower.
• D)All of the above are correct.

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Definitions:

FICA Tax

The Federal Insurance Contributions Act (FICA) tax is a United States federal payroll tax imposed on both employees and employers to fund Social Security and Medicare programs.

Incidence

The analysis of the distributional effect of a tax or policy on different groups, focusing on who bears the cost.

Tax Imposed

A financial charge levied by a government on individuals, corporations, or goods to fund public expenditures.

Elasticity of Supply

A measure of how much the quantity supplied of a good changes in response to a change in price.