Inflation-targeting means that the central bank is legally required to focus only on keeping inflation high

If an economy is experiencing both full employment and price stability, within the Keynesian model, a major tax reduction probably would cause

a. an increase in unemployment in the near future. b. an increase in the general level of prices unless government expenditures are also reduced. c. an increase in the interest rate since individuals will reduce their savings in response to the tax cut. d. a decrease in consumption unless the expected budget deficit is financed by selling bonds to foreigners.

Which of the following rises during a contraction and falls during the expansion phase of the business cycle?

a. prices b. unemployment c. output d. interest rates