Question

11. To reduce aggregate demand, the government may reduce _______________________ or increase _______________________ and such policy is called _________________________.

12. To reduce aggregate demand, fed may reduce _______________________ and such policy is called _________________________.

13. To increase aggregate demand, the government may increase_____________________ or decrease _______________________ and such policy is called____________________________.

14. How would an increase in the world price of oil affect the amount of frictional unemployment? Is this unemployment undesirable? What public policies might affect the amount of unemployment caused by this price change? _______________________________________________________________________________________________________________________________________________________________________________________________________________________.

Answer 1

a) To reduce the aggregate demand, the government may reduce "spending" or increase "taxes" and such policy is called "contractionary fiscal policy".

b) To reduce demand the Fed may reduce "money supply" and such policy is called "contractionary monetary policy".

c) To increase aggregate demand the government may increase "spending" or decrease "taxes" and such policy is called "expansionary fiscal policy".

d) AN increase in the price of oil around the world will increase the cost of production and thereby the goods produced. it will decrease the output in the market and cause a stagflation. it will increase the Frictional unemployment in the market. Frictional unemployment occurs when people are looking for a job in the market, it is not undesirable to a level as people will keep looking for a better opportunity.

Government would like to work on supply side economics like reducing the taxes, providing a conducive environment to the business to help reduce the effect of price rise in oil market.