You Are a Staff Economist with the Federal Reserve

question 23

Multiple Choice

You are a staff economist with the Federal Reserve.The chairman says to you,"The rate of change in inflation is too high,and I don't think the Phillips curve is very steep.What should we do to reduce these inflationary increases?" You respond with,

• A)"Because the Phillips curve is relatively flat,we need to increase interest rates a lot,as the change in inflation is not very responsive to changes in output."
• B)"Because the Phillips curve is relatively flat,we need to decrease interest rates a lot,as the change in inflation is not very responsive to changes in output."
• C)"Because the Phillips curve is relatively flat,we need to increase interest rates only a little,as the change in inflation is very responsive to changes in output."
• D)"Because the Phillips curve is relatively flat,we need to increase interest rates only a little,as the change in inflation is not very responsive to changes in output."
• E)"Because the Phillips curve is relatively flat,we can do nothing to interest rates,as the change in inflation does not respond to changes in output."

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Definitions:

Exponential Expression

A mathematical phrase where numbers or variables are raised to a power or exponent.

Associative Property

A mathematical rule stating that the way in which numbers are grouped in operations does not change their result.

Multiplication

A mathematical operation where a number is added to itself a certain number of times.

Decimal Places

The number of digits to the right of the decimal point in a number, determining its precision.