Suppose Most People Had Anticipated That Inflation Would Increase by 10

question 67

Multiple Choice

Suppose most people had anticipated that inflation would increase by 10% in the coming year because the Central Bank would increase the money supply by 10%.Instead,the Central Bank increases the money supply by only 5%.In the short run,this would cause actual output to be ________ full-employment output and prices to increase by ________ 5%.

• A)above;more than
• B)above;less than
• C)below;more than
• D)below;less than

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Definitions:

CDO Cash Flows

Refers to the cash flows associated with Collateralized Debt Obligations, a type of structured asset-backed security segmented by different risk levels.

Higher-risk Tranches

Segments of a debt instrument (like a mortgage-backed security) that have a greater risk of default but offer higher returns to compensate.

Yield Curve

A graph showing the relationship between bond yields and their maturities, indicating the differences in yield over various durations.

Positive Slope

In a graph, a line that goes up to the right, indicating a positive relationship or increase between two variables.