Suppose Real and Potential GDP Are Initially Equal

question 59

Multiple Choice

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

• A)a higher real rate of interest.
• B)lower real interest rates.
• C)no change in the real rate of interest.
• D)a decline in unemployment.
• E)a decline in potential GDP.

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Definitions:

Medical Bills

Expenses incurred for receiving medical treatment and health services.

Expected Value

In reference to a random variable, the weighted average of all possible values, where the weights on each possible value correspond to the probability of that value occurring.

Premium

An amount paid for an insurance policy or an amount over the regular price for enhanced or additional features or services.

Insurance Policy

A contract between an individual or entity and an insurance company, outlining coverage terms and conditions for specific risks.