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:

Weekly Salaries

The amount of money individuals earn per week for their labor or service.

Employees

Individuals who work part-time or full-time under a contract of employment, whether oral or written, express or implied, and have recognized rights and duties.

Dollars

A unit of currency used in various countries, including the United States, symbolized by the dollar sign ($).

Heights

The measurement of how tall a person or structure is, typically measured from base to top.