You are the chairperson of the Board of Governors of the Federal Reserve. You believe in a Keynesian model of the economy, and your goal is to keep the economy at the full-employment level of output. How would you respond (tightening or easing policy) in each of the following cases?(a)Government purchases increase(b)Corporate tax rates increase(c)Expected inflation increases(d)There's a beneficial oil price shock (and the LM curve shifts more to the right than the FE line)
What will be an ideal response?
| (a) | Tighten |
| (b) | Ease |
| (c) | Tighten |
| (d) | Tighten |
Economics
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