Suppose the Economy Is Initially Operating at the Natural Level

question 30

Multiple Choice

Suppose the economy is initially operating at the natural level of output. Now, suppose the central bank raises the inflation target by 2.5%. Given this information, we would expect that:

• A) the nominal interest rate will increase by more than 2.5% in the medium run.
• B) the nominal interest rate will increase by exactly 2.5% in the medium run.
• C) the nominal interest rate will fall by exactly 2.5% in the medium run.
• D) the nominal interest rate will fall by less than 2.5% in the medium run.
• E) the nominal interest rate will not change in the medium.

Evaluate the effects of self-fulfilling prophecies in social interactions and outcomes.

Understand the concept of social cognition and how perceptions can be influenced by context and prior information.

Grasp the definitions and distinctions between schemas, metaphors, and priming in social cognition.

Recognize the effects of priming on behavior and decision-making processes.

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Definitions:

Nominal Rate

The stated interest rate of a financial instrument or loan, not accounting for compounding or inflation.

Effective Rate

The interest rate on a loan or financial product, re-calculated annually, which takes into account the effect of compounding.

Compounding Interval

The frequency at which the earned interest is added to the principal balance of an investment, affecting the total compound interest over time.

Monthly Payment

A specified amount of money that a borrower agrees to pay to a lender at regular monthly intervals, often associated with loans or mortgages.