Explain why the Fed does not consider zero unemployment as a desirable goal
What will be an ideal response?
If the unemployment rate was zero, cyclical unemployment would have to be negative and real GDP would greatly exceed potential GDP. When real GDP exceeds potential GDP, the inflation rate increases, which is not compatible with the Fed's goal of price stability.
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Describe the choices that producers make and explain why producers are efficient on the market supply curve
What will be an ideal response?
The growth rate of real GDP in Astoria is 7.5%. Assume the growth rate of velocity is constant at a rate of 5%
If Astoria wishes to decrease the inflation rate from the annual rate of 5.99% to a target rate of 4.5% and maintain its current growth rate of real GDP, what will the growth rate of the money supply need to be? A) 6.49%. B) 7%. C) 8%. D) 8.49%.