At Long-Run Equilibrium in the Dynamic Model of Aggregate Demand

question 19

Multiple Choice

At long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, the nominal interest rate i_t equals all of the following except:

• A)ρ + π_t.
• B)r_t + π_t.
• C)ρ + E_tπ_{t + 1.}
• D)ρ + r_t.

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Definitions:

Production Possibilities Curve

A graphical representation that shows the maximum combination of goods and services that can be produced with a given set of resources and technology, illustrating the concept of opportunity cost.

Optimal Point

The most favorable or advantageous condition or value of a variable determined within a given set of constraints.

Marginal Benefits

The added pleasure or value that comes from the additional consumption or production of a good or service unit.

Marginal Costs

The supplementary cost involved in the production of one more unit of a product or service.