Question

If the inflation rate were about 4%, what action would monetary policy likely take and for what reason?

		increase the interest rate to decrease spending and put downward pressure on prices
		decrease the interest rate to increase spending and put upward pressure on prices
		increase the interest rate to increase spending and put upward pressure on prices
		decrease the interest rate to decrease spending and put downward pressure on prices

In a recession that's caused by a negative SRAS shock (as in the 1970s oil price shock),

		both inflation and unemployment tend to decrease
		inflation increases but unemployment decreases
		inflation decreases but unemployment increases
		both inflation and unemployment tend to increase

Answer 1

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If the inflation rate were about 4%, what action would monetary policy likely take and for what reason?

Answer: increase the interest rate to decrease spending and put downward pressure on prices

The primary policy for reducing inflation is monetary policy – in particular, raising interest rates reduces demand and helps to bring inflation under control.

inflation rate of 4% is considered as high as world average annual inflation rate is 3.15 since 1913

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In a recession that's caused by a negative SRAS shock (as in the 1970s oil price shock),

Answer: both inflation and unemployment tend to increase

The supply curve shifts to the left, which results in stagflation. In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high.