If the Natural Rate of Unemployment Is 6%, but the Fed

question 156

Multiple Choice

If the natural rate of unemployment is 6%, but the Fed thinks it is 5% and attempts to use monetary policy to move unemployment from 6% to 5% then in the short run which of the following variables will the Fed's policy raise above their long-run levels?

• A)the price level and real GDP
• B)the price level but not real GDP
• C)real GDP but not the price level
• D)neither real GDP nor the price level

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Definitions:

Common Stock

A type of corporate equity security that represents a share of ownership in a corporation, conferring voting rights and a portion of the profits (dividends).

Treasury Stock

Shares that were issued and subsequently reacquired by the issuing company, reducing shareholders' equity.

Stockholders' Equity

The ownership interest of shareholders in a company, calculated as the company's total assets minus its total liabilities.