Please complete the following statements using the labels provided below: Suppos

Question

Please complete the following statements using the labels provided below: Suppose that the Federal Reserve Bank wants to address high levels of unemployment in the economy. To do so, it would likely seek to increase If the Federal Reserve Bank is able to instigate the growth it desires, it will likely come at the cost of increasing Suppose that the Federal Reserve Bank achieves the growth it wants, but also experiences the negative consequences. As a result, it will seek to increase, at the risk of leading the economy into a

Explanation / Answer

Suppose that the Federal Reserve Bank wants to address high levels of unemployment in the economy. To do so, it would likely seek to increase aggregate demand. This is because by increasing AD , it will increase the price level i.e. inflation. And as you know inflation and unemployment has a negative relationship, so unemployment will fall.

If the Federal Reserve Bank is able to instigate the growth it desires, it will likely come at the cost of increasing inflation. This is because when price level increases real GDP will also increases.

Suppose that the Federal Reserve Bank achieves the growth it wants, but also experiences the negative consequences. As a result, it will seek to increase deflation, this is because after economic growth reaches to its maximum, price level will start to fall, at the risk of leading the economy into a recession. This is because when price level starts to fall real GDP falls and the economy moved into recession.

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