Inflation Eased in October

Inflation eased further in October, offering a dose of encouragement as the Federal Reserve looks for enough progress to let up on its fight to tame consumer prices and slow the economy.—washingtonpost.com

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

Why does the Fed’s “fight to tame consumer prices” also slow the economy?

To “tame consumer prices”, the Fed ____________.

a) raises interest rates, which slows the growth of aggregate demand and real GDP

b) lowers interest rates, which slows the growth of aggregate demand and real GDP

c) lowers interest rates, which slows the growth of short-run aggregate supply and potential GDP

d) raises interest rates, which slows the growth of short-run aggregate supply and potential GDP

How does the Phillips curve illustrate the tradeoff that the Fed faces when it “fights to tame consumer prices”?

A movement down along ____________.

a) the short-run Phillips curve shows the tradeoff between consumer prices and real GDP growth

b) the long-run Phillips curve shows the tradeoff between inflation and unemployment

c) the short-run Phillips curve shows the tradeoff between inflation and unemployment

d) the long-run Phillips curve shows the tradeoff between consumer prices and real GDP growth

Inflation Eased in October

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