Suppose that people’s expectations in 2013 are rational. If the Federal Reserve engages in a fourth round of quantitative easing, then the inflation rate will [Increase, Decrease, or remain the same] and the unemployment rate will [increase, decrease, or remain the same] in the short run. These changes occur as a result of the aggregate demand curve [increasing, decreasing, or remaining the same] and the aggregate supply curve [increasing, decreasing, or remaining the same]

If the Federal Reserve engages in a fourth round of quantitative easing, then the inflation rate will [Increase, Decrease, or remain the same] and the unemployment rate will [increase, decrease, or remain the same] in the short run.

These changes occur as a result of the aggregate demand curve [increasing, decreasing, or remaining the same] and the aggregate supply curve [increasing, decreasing, or remaining the same].

Explanation:

The Federal Reserve's fourth round of Quantitative Easing (QE) is the central bank monetary policy which enables it to buy government bonds and other assets from the open market in order to inject more money or increase the money supply in the economy, thereby expanding economic activity by encouraging lending and investments.  QE can cause inflation if demand grew faster than supply as it takes longer for the velocity of money – the speed at which capital zooms through the economy and turns over – that is, to permeate the economy.

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