Exhibit 27-1 -Suppose the Fed Decides to Increase the Real Interest Rate

question 15

Multiple Choice

Exhibit 27-1
-Suppose the Fed decides to increase the real interest rate. According to the data in Exhibit 27-1,

• A)the gap between real and potential GDP must be increasing.
• B)inflation must be increasing.
• C)inflation must be constant, and the gap between real and potential GDP must be increasing.
• D)inflation must be increasing or the gap between real and potential GDP must be increasing.
• E)inflation must be increasing, and the gap between real and potential GDP must be increasing.

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