Suppose We Know the Following Information About a Hypothetical Economy

question 69

Multiple Choice

Suppose we know the following information about a hypothetical economy: -real GDP = $485 billion
-potential GDP = $500 billion
-inflation rate = 4%
-target overnight interest rate = 6%
If the central bank implements a contractionary monetary policy in an effort to reduce the inflation rate,the short-run effect of this policy is likely to be that

• A)unemployment will rise further beyond the NAIRU.
• B)unemployment will fall below NAIRU.
• C)the interest rate and the inflation rate will both rise and unemployment will fall.
• D)the interest rate and the inflation rate will both fall and unemployment will rise.
• E)all real variables will remain unchanged.

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