Suppose oil prices rise. The Fed can___________ the quantity of money to ___________the unemployment rate back to its natural rate.
A) decrease; raise
B) increase; raise
C) increase; lower
D) decrease; lower

Question

Quizplus · Accepted Answer

When oil prices rise, it can lead to inflation which increases the cost of goods and services. To combat this, the Fed can increase the quantity of money in circulation. This can lower interest rates and stimulate spending, thereby lowering unemployment rates.

Suppose Oil Prices Rise