Suppose Real and Potential GDP Are Initially Equal

question 48

Multiple Choice

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

• A)a decrease in the rate of inflation.
• B)an increase in the rate of inflation.
• C)a higher real rate of interest.
• D)lower unemployment.
• E)a higher nominal interest rate.

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Definitions:

Slope

In the field of mathematics, the slope is determined by the steepness or angle of elevation of a line, calculated as the ratio between the vertical and horizontal differences of two points on the line.

Positively Related

A relationship in which two variables move in the same direction; as one increases, the other also increases.

Negatively Related

A relationship between two variables where one decreases as the other increases, and vice versa.

Unrelated

Not connected or associated with something else in any way.