According to the Great Moderation consensus today, an unemployment rate of 6% when the natural rate is 4.5% should be countered by:
A) decreases in government spending.
B) increases in tax rates.
C) increases in the rate of growth of the money supply.
D) decreases in the rate of growth of the money supply.

Question

Quizplus · Accepted Answer

According to the Great Moderation consensus, the best way to counter a higher unemployment rate is by increasing the rate of growth of the money supply. This is based on the belief that monetary policy is a more effective tool for stabilizing the economy than fiscal policy. By increasing the money supply, interest rates can be lowered, which in turn stimulates investment and consumption spending, leading to job creation and economic growth. Conversely, decreasing the rate of growth of the money supply can have the opposite effect, leading to higher interest rates, reduced investment and consumption spending, and a potential worsening of the unemployment situation.

According to the Great Moderation Consensus Today, an Unemployment Rate