For a Fixed Target Real Interest Rate and Target Inflation

question 106

Multiple Choice

For a fixed target real interest rate and target inflation rate, when inflation increases, the Fed ________ interest rates, hence ________ short-run equilibrium output.

• A)increases; increasing
• B)decreases; increasing
• C)increases; decreasing
• D)decreases; decreasing

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Definitions:

Federal Income Tax

An annual financial obligation enforced by the IRS on earnings of persons, businesses, trusts, and other legal entities.

FICA Taxes

Taxes collected under the Federal Insurance Contributions Act, funding Social Security and Medicare, deducted from employees' paychecks and matched by employers.

Schedule H

A form used in the United States to report taxes owed for the employment of household help.

W-2C

A form used to correct information previously reported on a Form W-2, Wage and Tax Statement.