Answer to Question #137208 in Macroeconomics for December

Question

49. If inflation accelerates due to the increase in the price of oil (an import), the best policy to combat such inflation in a country with a high unemployment rate, would be to...

[1] apply the supply-side policy that will increase aggregate supply, which will be illustrated by a rightward shift of the AS curve.

[2] respond with demand management policy that will increase aggregate demand, which will be illustrated by a rightward shift of the AD curve.

[3] implement contractionary monetary policy, illustrated by the rightward shift of the AD curve.

[4] apply incomes policy, illustrated by a leftward shift of the AS curve.

Answer 1

[1] apply the supply-side policy that will increase aggregate supply, which will be illustrated by a rightward shift of the AS curve.