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

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
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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.

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