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:

Tuition Bonds

Financial instruments issued by educational institutions to fund their operations and expansion, typically repaid from tuition revenues.

Rate of Interest

The charge, as a percentage of the initial loan amount, incurred by a borrower for the utilization of funds or assets from a lender.

Company Cost

Expenses incurred by a business in the process of producing goods or services, including operational, production, and capital costs.

Capital

Financial assets or the financial value of assets, such as cash and goods, used to fund the production of goods and services or to pay for investments.