Homework SourseStabilization 5 Stabilization Suppose the US educational sys
Stabilization
| 5. | Stabilization Suppose the US educational system improves, making workers more productive. If the federal reserve is trying to stabilize the price level in response, they should |
Solution
Supply will be increase as workers become more productive. supply curve shifts to the right. As a result, the price will be decreased. to increase the price to initial equilibrium, demand should be increased. This can be possible by expansionary monetary policy by FED. If FED lowers the reserve requirement, the money supply will be increased, the interest rate will be decreased. People at this low-interest rate increase their spending and reduce their savings. aggregate demand will be increased, demand curve shifts to the right as a result price will be increased.
Option G is correct.
