Essay
You are the governor of the Central Bank of Atlantis.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).
Correct Answer:
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a.tighten
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