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Suppose the government implements fiscal consolidation by cutting spending while the nominal interest rate is already at zero or near zero percent. Given nequals to 7-1, fiscal consolidation will likely lead to: All of the answers here are incorrect Ob. Deflation spiral, decreasing real interest rate and a recession . Deflation spiral, increasing real interest rate and a recession od increasing inflation and real interest rates, and a recession Increasing inflation, decreasing real interest rate and a recession O a O Suppose the economy is initially in the medium run equilibrium. Then the government implements an expansionary fiscal policy by reducing taxes. If people's expectations of inflation is not anchored but is equal to last period's inflation, what will be the policy interest rate, consumption, investment and inflation compared to their initial values when the medium run equilibrium is restored again such that output returns directly to its initial value without a recessionary adjustment? Oa The policy rate of interest has increased, consumption has increased investment has decreased and the level of inflation retums to its initial values The policy rate of interest has increased, consumption has increased investment has decreased and a higher level of inflation The policy rate of interest has decreased consumption has increased investment has increased and the level of inflation returns to its initial value d The policy rate of interest has increased, consumption has decreased investment has increased and a lower level of inflation The policy rate of interest has decreased consumption has increased investment has decreased, and a higher level of inflation Ob Oe Question 5 Suppose the economy is initially in the medium run equilibrium. Then the government implements an expansionary fiscal policy by increasing government spending. If the level of expected inflation is formed sort equals to t-1, what should the central bank do in order to restore the inflation rate back to its original value? Ob All of the answers here are incorrect The central bank needs to create a boom so that inflation can return to its original value The central bank needs to increase output to potential output so that inflation can return to its original value The central bank has to reduce output to potential output so that inflation can be reduced to its original value The central bank needs to create a recession so that inflation can be reduced to its original value . d. 20 Suppose the Okun's Law is: u = u(-1) = -0.5(gy 3%). What should be the growth rate of output, gy, if the unemployment rate, u, is to be reduced by 1%? Oa O... Oc SA Od 2 All of the answers here are incorrect If people expect this period's inflation is equal to last period's inflation, an increase in the price of oil in the medium run will cause: An increase in the natural rate of unemployment O a. All of the answers here are correct b A reduction in output O c. An increase in the real policy rate Od An increase in the price level O Suppose the government implements fiscal consolidation by cutting spending while the nominal interest rate is already at zero or near zero percent. Given nequals to 7-1, fiscal consolidation will likely lead to: All of the answers here are incorrect Ob. Deflation spiral, decreasing real interest rate and a recession . Deflation spiral, increasing real interest rate and a recession od increasing inflation and real interest rates, and a recession Increasing inflation, decreasing real interest rate and a recession O a O Suppose the economy is initially in the medium run equilibrium. Then the government implements an expansionary fiscal policy by reducing taxes. If people's expectations of inflation is not anchored but is equal to last period's inflation, what will be the policy interest rate, consumption, investment and inflation compared to their initial values when the medium run equilibrium is restored again such that output returns directly to its initial value without a recessionary adjustment? Oa The policy rate of interest has increased, consumption has increased investment has decreased and the level of inflation retums to its initial values The policy rate of interest has increased, consumption has increased investment has decreased and a higher level of inflation The policy rate of interest has decreased consumption has increased investment has increased and the level of inflation returns to its initial value d The policy rate of interest has increased, consumption has decreased investment has increased and a lower level of inflation The policy rate of interest has decreased consumption has increased investment has decreased, and a higher level of inflation Ob Oe Question 5 Suppose the economy is initially in the medium run equilibrium. Then the government implements an expansionary fiscal policy by increasing government spending. If the level of expected inflation is formed sort equals to t-1, what should the central bank do in order to restore the inflation rate back to its original value? Ob All of the answers here are incorrect The central bank needs to create a boom so that inflation can return to its original value The central bank needs to increase output to potential output so that inflation can return to its original value The central bank has to reduce output to potential output so that inflation can be reduced to its original value The central bank needs to create a recession so that inflation can be reduced to its original value . d. 20 Suppose the Okun's Law is: u = u(-1) = -0.5(gy 3%). What should be the growth rate of output, gy, if the unemployment rate, u, is to be reduced by 1%? Oa O... Oc SA Od 2 All of the answers here are incorrect If people expect this period's inflation is equal to last period's inflation, an increase in the price of oil in the medium run will cause: An increase in the natural rate of unemployment O a. All of the answers here are correct b A reduction in output O c. An increase in the real policy rate Od An increase in the price level O