Oil prices have risen temporarily, due to political uncertainty in the Middle East. An advisor to the Fed suggests, "Higher oil prices reduce aggregate demand. To offset this we must increase the money supply
Then the price level won't need to adjust to restore equilibrium, and we'll prevent a recession." Analyze this statement using the IS—LM model.
This is a change in the FE line, not aggregate demand, so the policy is incorrect. Instead, to keep the price level fixed, money supply should decrease, so output falls and the real interest rate rises.
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The notion of "purposeful behavior" in the economic perspective suggests that:
A. People will tend to stick with a particular choice for a long period of time B. Economic analysis will provide people with a single "right" way to behave C. Economists do not believe that people can sometimes behave impulsively D. One person's choice may differ from another's if their circumstances and information differ
Inflation refers to an increase in the
A. price level. B. rate of inflation. C. total income. D. real GDP.