If the Economy Is in a Long-Run Equilibrium When the Federal

question 52

Multiple Choice

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

• A)monetary policy would ultimately lead to higher potential output but real interest rates and inflation would be unaffected in the long run
• B)monetary policy would ultimately lead to higher inflation but real interest rates and potential output would be unaffected in the long run
• C)monetary policy would ultimately lead to higher interest rates but potential output and inflation would be unaffected in the long run
• D)monetary policy would ultimately lead to higher interest rates,potential output,and inflation in the long run
• E)none of the above

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Definitions:

Discounted Payback

The period of time it takes for an investment’s cash flows, discounted at a particular rate, to cover its initial cost.

Discounted Payback Rule

A capital budgeting technique that determines the amount of time required for discounted cash flows from a project to repay the initial investment.

Pre-Specified Period

A defined time frame agreed upon or determined before the start of a certain process or event.

Discounted Payback Period

The time it takes to break even from an investment based on the present value of its cash flows.