If the Nominal Interest Rate Is Currently

question 12

Multiple Choice

If the nominal interest rate is currently .03 and the central bank follows the rule nominal interest rate = .03 + .5(output gap) + 1.5(inflation rate - .04) ,
Then it will leave nominal rates unchanged in each of the following cases except

• A) full employment with four percent inflation
• B) a three percent output gap and three percent inflation
• C) a supply shock causing six percent inflation and a negative output gap of six percent
• D) a technology jump causing a fifteen percent output gap and one percent deflation
• E) a two percent output gap and two percent inflation

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Definitions:

Classified Balance Sheet

A balance sheet that organizes assets and liabilities into subcategories such as current and long-term.

Subgroups

Subgroups are divisions or categories within a larger group, often used in organizing data, accounts, or various organizational structures for more detailed analysis.

Accounting Cycle

the series of steps followed in the accounting process, from the initial recording of transactions to the preparation of financial statements.

Adjusted Trial Balance

A record containing all accounts with their adjusted balances, utilized for the creation of financial statements.