Suppose We Know the Following Information About a Hypothetical Economy

question 52

Multiple Choice

Suppose we know the following information about a hypothetical economy: - real GDP = $945 billion
- potential GDP = $900 billion
- inflation rate = 3%
If the central bank conducts monetary policy in an attempt to keep the unemployment rate below the NAIRU,the inflation rate is likely to

• A)cause stagflation.
• B)cause a recession.
• C)remain constant at 3%.
• D)fall below 3%.
• E)rise above 3%.

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Definitions:

Exchange Rate

The price of one currency in terms of another currency.

British Pounds

The currency of the United Kingdom, known officially as the pound sterling, symbolized as GBP.

Australian Dollar

The currency of Australia, used as the official legal tender in the country and its territories.

Euro

The official currency of the eurozone, which is a monetary union of 19 of the 27 European Union member states.