Question

1. Which of the following best describes the relationship between inflation and unemployment?

A) As inflation increases, unemployment will always increase

B) It includes periods in which there is a trade-off between the two, but is overall more nuanced and varied

C) There is never a trade-off between inflation and unemployment

D) It adheres to the Phillips curve trade-off in both the short and long run time periods

2. A large decrease in government purchases due to a reduction in the services offered to the public would most likely be considered an example of

A. contractionary fiscal policy

B. a tax decrease

C.expansionary fiscal policy

D. an automatic stabilizer

3. Controlling inflation appears to be the Fed's _____; closing recessionary gaps appears to be the Fed's _____.

A. secondary goal; primary goal

B. lowest priority; growing priority

C. primary goal; secondary goal

D. attempt at lowering tax rates; goal when investing in education

Answer 1

Answer 1) there is a trade off between inflation rate and the unemployment rate depicted by the Philips curve. Hence option D is the correct answer.

Answer 2) large decrease in the government expenditure depicts a fiscal contraction. Hence option A is the correct answer.

Answer 3) controlling inflation is Fed's primary goal and closing a recessionary gap appears to be the secondary goal. Hence option c is the correct answer.