Question

Q 5,8

*

Suppose oil prices rise. The Fed can​ ________ the quantity of money to​ ________ the unemployment rate back to its natural rate.

A.

​increase; raise

B.

​decrease; raise

C.

​decrease; lower

D.

​increase; lower

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If the​ government's outlays are​ $1.5 trillion and its tax revenues are​ $2.2 trillion, the government is running a budget

A.

deficit of​ $0.7 trillion.

B.

surplus of​ $0.7 trillion.

C.

deficit of​ $3.7 trillion.

D.

surplus of​ $3.7 trillion.

Answer 1

question 1)

Answer :D increase, lower

As per the Short run Phillips curve ( SRPC), there is an inverse relationship between inflation and unemployment; when inflation rises , unemployment rate falls. Whereas if the inflation reduces , the unemployment rate rises. Here in this scenario we want to reduce unemployment rate to natural unemployment rate, therefore increase in money supply causes inflation, thus reduced unemployment rate

question 2)

Answer : B surplus of $ 0.7 trillion

Government outlays= government expenditure i.e ) $ 1.5 trillion

government revenue = $ 2.2 trillion

therefore Budget balance= government revenue - government expenditure

= 2.2 - 1.5 = + $ 0.7 trillion., which is a surplus amount, revenue > expenditure