Assume the actual unemployment rate is equal to the nonaccelerating inflation rate of unemployment (NAIRU)of 5 percent.If the Fed wants to raise the inflation rate permanently from 1 percent to 3 percent,it should ________ the target for the federal funds rate so the economy's equilibrium moves ________ along the short-run Phillips curve.

Question

Quizplus · Accepted Answer

If the goal is to permanently raise the inflation rate from 1 percent to 3 percent, the Fed needs to push the actual unemployment rate below the NAIRU. This means shifting the economy's equilibrium "up" along the short-run Phillips curve. To achieve this, the Fed should lower the target for the federal funds rate. Therefore, choice C (lower; up) is the best answer.

Assume the Actual Unemployment Rate Is Equal to the Nonaccelerating