The Rise and Fall of Real GDP Over the Course

question 99

Multiple Choice

The rise and fall of real GDP over the course of the business cycle suggests that

• A) the economy is always at full employment.
• B) the economy may not always be in long-run equilibrium.
• C) the economy is always at its potential output level.
• D) wage and price stickiness ensures that the economy moves from a peak to a trough.

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Definitions:

Interest Rate

Refers to the cost of borrowing money, expressed as a percentage of the amount loaned, or the return on invested savings.

Loanable Funds

The money available for borrowing in the financial markets, determined by the saving rates of individuals and the banking sector's policies.

Inflation Rate

A measure of the rate at which the general level of prices for goods and services is rising, and, subsequently, purchasing power is falling.

Real Rate

This is the interest rate adjusted for inflation, representing the real cost of borrowing and the real yield to lenders or investors.