With the Economy at Its Potential Level of Output, the Federal

question 34

Multiple Choice

With the economy at its potential level of output, the federal government undertakes a large military buildup; all other things equal, the impact on the long-run real interest rate will be to:

• A) increase.
• B) decrease.
• C) remain constant since output is at its potential level.
• D) change at the same rate as inflation.