Suppose Real and Potential GDP Are Initially Equal

question 59

Multiple Choice

Suppose real and potential GDP are initially equal. If the Fed increases the target inflation rate, then in the long run we would expect

• A)a higher real rate of interest.
• B)lower real interest rates.
• C)no change in the real rate of interest.
• D)a decline in unemployment.
• E)a decline in potential GDP.

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