Over the course of a business cycle, the economic variable(s) that the Federal Reserve has significant...
Over the course of a business cycle, the economic variable(s) that the Federal Reserve has significant effect on is (are) A) inflation. B) output. C) unemployment. D) A & B only. E) A, B, & C.
Homework Answers
Correct option is (E).
During economic expansion (recession), Fed decreases (increases) money supply to lower inflation (boost economic growth). A fall (rise) in money supply will increase (decrease) interest rate, thus decreasing (increasing) investment, consumption and aggregate demand. Lower (higher) aggregate demand will decrease (increase) output and increase (decrease) unemployment.
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