Unemployment Hits Pandemic Low in March

EconEye Admin

4 years ago

The labor market’s momentum has been accompanied by a surge in inflation, presenting a major headache for Federal Reserve officials. The Fed raised interest rates by 0.25 percentage points in March and has signaled further increases.—washingtonpost.com

Answer the following questions to check your understanding of the story.

What is the major headache for Federal Reserve officials?

The major headache for Federal Reserve officials is that _______.

a) action to lower the inflation rate also lowers the unemployment rate below the natural unemployment rate.

b) the Fed must wait for instructions from Congress before it can act

c) raising the interest rate to slow inflation also increases unemployment

d) there is a tradeoff between inflation and unemployment in the long run

When the Fed raises the interest rate to slow inflation, how does investment respond? What is the effect on aggregate demand?

When the Fed raises the interest rate to slow inflation, investment decreases, which decreases aggregate demand and unemployment increases.

How does the short-run Phillips curve illustrate the information in the news clip?

The information in the news clip is illustrated as ________________.

a) an upward shift of the short-run Phillips curve

b) a movement up along the short-run Phillips curve

c) a movement down along the short-run Phillips curve

d) a downward shift of the short-run Phillips curve

The short-run Phillips curve shows the tradeoff between the inflation rate and the unemployment rate. Is a rise in the inflation rate and a decrease in the unemployment rate shown as a movement along the short-run Phillips curve or a shift of the short-run Phillips curve?

The short-run Phillips curve is the relationship between inflation and unemployment, holding constant the expected inflation rate and the natural unemployment rate. The news clip describes a rise in the inflation rate and a decrease in the unemployment rate, which is a movement up along the short-run Phillips curve.

Share this: