If the Monetary Authorities Follow Policies That Keep the Annual

question 24

Multiple Choice

If the monetary authorities follow policies that keep the annual rate of inflation steady and low (for example, 2 percent) , which of the following is most likely to occur?

• A) a high rate of unemployment because people will anticipate a higher rate of inflation
• B) considerable fluctuations in real GDP because the monetary authorities are not constantly adjusting monetary policy in light of current business conditions
• C) higher real interest rates because decision makers will fail to anticipate the 2 percent rate of inflation
• D) an unemployment rate that is at or near the natural rate of unemployment because the actual rate of inflation will not be much different than what people expect

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Definitions:

Fixed Manufacturing Overhead

The portion of manufacturing overhead costs that do not vary with the level of production or sales, such as factory rent.

Fixed Manufacturing Overhead

Costs that do not change with the level of production, such as rent, salaries, and insurance for the manufacturing facilities.

Budget Variance

The difference between the budgeted or baseline amount of expense or revenue, and the actual amount.

Insurance Rates

The cost per unit of coverage set by insurance companies, determining the premium paid by policyholders.