Suppose We Know the Following Information About a Hypothetical Economy

question 55

Multiple Choice

Suppose we know the following information about a hypothetical economy: - real GDP = $550 billion
- potential GDP = $500 billion
- inflation rate = 4%
If the central bank tries to keep real GDP constant at $550 billion,the inflation rate is likely to

• A)remain constant at 4%.
• B)fall below 4%.
• C)rise above 4%.
• D)cause stagflation.
• E)cause a recession.