The Reserve Bank responds to an increase in unemployment caused by a decrease in the AS curve by lowering interest rates.This will i.shift the aggregate demand curve rightward and raise the price level.
Ii)shift the aggregate demand curve rightward and the aggregate supply curve leftward,raising prices.
Iii)result in lower employment and a higher price level.
A)i and ii
B)ii and iii
C)iii only
D)i only
E)i and iii

Question

Quizplus · Accepted Answer

When the Reserve Bank responds to an increase in unemployment caused by a decrease in the AS curve by lowering interest rates, this will shift the aggregate demand curve rightward (i) and raise the price level (i). There will not be a shift in the aggregate supply curve, so option ii is not correct. Also, lower employment is not a direct result of this action, so option iii is not correct either. Therefore, the best choice is D, i only.

The Reserve Bank Responds to an Increase in Unemployment Caused