What causes Stagflation

A .Stagflation is caused by a


a. leftward shift in the aggregate-demand curve.

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b. rightward shift in the aggregate-demand curve.

c. leftward shift in the aggregate-supply curve.

d. rightward shift in the aggregate-supply curve.

B. According to the theory of liquidity preference, an economy’s interest rate adjusts

a. to balance the supply and demand for loanable funds.

b. to balance the supply and demand for money.

c. one-for-one to changes in expected inflation.

d. to equal the interest rate prevailing in world financial markets.

C. I f the central bank wants to contract aggregate demand, it can _________ the money supply and thereby _________ the interest rate.

a. increase; increase  b. increase; decrease

c. decrease; increase d. decrease; decrease

D. T he Fed’s target for the federal funds rate

a. is an extra policy tool for the central bank, in addition to and independent of the money supply.

b. commits the Fed to set a particular money supply so that it hits the announced target.

c. is a goal that is rarely achieved because the Fed can determine only the money supply.

d. matters to banks that borrow and lend federal funds but does not influence aggregate demand.


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