Which Set of Changes Is Definitely Predicted to Lower Real

question 84

Multiple Choice

Which set of changes is definitely predicted to lower Real GDP in the short run?

• A) Interest rates rise and wage rates fall.
• B) Interest rates rise and there is a beneficial supply shock.
• C) Interest rates rise and labor productivity increases.
• D) Interest rates rise and individuals expect lower (future)incomes.
• E) c and d

---

Definitions:

Classical Dichotomy

The theoretical separation of nominal and real variables in the economy, suggesting that changes in the money supply only affect nominal variables and not real variables like output.

Monetary Neutrality

The economic theory suggesting that changes in the money supply only affect nominal variables and have no long-term effect on real variables such as output or employment.

Long-Run Aggregate-Supply Curve

The long-run aggregate-supply curve represents the total production of goods and services in an economy at different price levels, assuming all resources are fully utilized.

Misperceptions Theory

A theory suggesting that individuals' misperceptions about economic conditions can lead to fluctuations in economic output and employment.