Question

1. The positive relationship between inflation and unemployment in the Philips curve comes from that

1. Job searchers underestimate the future inflation
2. Job searchers overestimate the future inflation
3. Firms have no expectation

2. When the Fed buys bonds, it:

1. Changes the size of the money multiplier
2. Decreases the money supply
3. Increases the money supply

3. if people are very sensitive to the interest rate change, which of the following is a more effective policy to control the inflation in the short run?

1. A ten-year tax-cutting plan
2. The Fed buys U.S. bonds from banks
3. A restrictive monetary policy

Answer 1

As we know that, the Phillips Curve is the graphical representation of the short-term relationship between unemployment and inflation within an economy. According to the Phillips Curve, there exists a negative, or inverse, relationship between the unemployment rate and the inflation rate in an economy.

1). The correct option is (a).

Job searchers underestimate the future inflation.

In the philips curve the job searchers will underestimate the future inflation rate.

2). The correct option is (c).

We know that, If the Fed buys bonds in the open market, it increases the money supply in the economy by swapping out bonds in exchange for cash to the general public. Conversely, if the Fed sells bonds, it decreases the money supply by removing cash from the economy in exchange for bonds.

3). The correct option is (c).

Restrictive monetary policy.

Restrictive monetary policy is how central banks slow economic growth. It's called restrictive because the banks restrict liquidity. It reduces the amount of money and credit that banks can lend. It lowers the money supply by making loans, credit cards and mortgages more expensive.

Hope you got the answer.

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