Treasury Secretary Janet Yellen Says She Was Wrong About the Risks of Inflation

Janet Yellen said she was wrong a year ago when she anticipated inflation would not be a problem. “Large shocks to the economy have boosted energy prices,” Yellen said. The Fed has begun raising interest rates aggressively.—npr.org

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

What is the effect of rising energy prices on the U.S. economy?

Rising energy prices ____________.

a) decrease short-run aggregate supply, which raises the price level and decreases real GDP

b) decrease both short-run and long-run aggregate supply, which raises the price level and decreases real GDP

c) increase aggregate demand, which raises the price level and increases real GDP

d) decrease short-run aggregate supply by more than aggregate demand decreases, raise the price level, and decrease real GDP

What effect will the Fed’s “raising interest rates aggressively” have on the economy?

The Fed’s actions of “raising interest rates aggressively” will _____________.

a) decrease aggregate demand, lower the price level, and move the unemployment rate toward the natural unemployment rate

b) increase short-run aggregate supply, lower the price level, and move the unemployment rate toward the natural unemployment rate

c) decrease aggregate demand, lower the price level, and move the unemployment rate further below the natural unemployment rate

d) decrease short-run aggregate supply and move the economy into a stagflation

Treasury Secretary Janet Yellen Says She Was Wrong About the Risks of Inflation

Like this:

Leave a ReplyCancel reply

Share this:

Like this:

Leave a ReplyCancel reply

Discover more from Econ Eye