Suppose We Know the Following Information About a Hypothetical Economy

question 69

Multiple Choice

Suppose we know the following information about a hypothetical economy: -real GDP = $485 billion
-potential GDP = $500 billion
-inflation rate = 4%
-target overnight interest rate = 6%
If the central bank implements a contractionary monetary policy in an effort to reduce the inflation rate,the short-run effect of this policy is likely to be that

• A)unemployment will rise further beyond the NAIRU.
• B)unemployment will fall below NAIRU.
• C)the interest rate and the inflation rate will both rise and unemployment will fall.
• D)the interest rate and the inflation rate will both fall and unemployment will rise.
• E)all real variables will remain unchanged.

---

Definitions:

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how spread out the values are.

Geometric Mean

A mean or average which indicates the central tendency or typical value of a set of numbers by using the product of their values (as opposed to the arithmetic mean which uses their sum).

Median

A statistical measure that represents the middle value of a dataset when it's ordered from smallest to largest.

Mode

The value that appears most frequently in a data set.