Suppose That,in an Economy,ADI = 800 + 0

question 4

Multiple Choice

Suppose that,in an economy,ADI = 800 + 0.9Y - 20,000r,and the central bank acts according to the following monetary policy rule:
If inflation is 4%,the central bank will set a real interest rate of ________%,and short-run equilibrium output will be equal to _________.

• A) 0;8,000
• B) 3;2,000
• C) 3;4,000
• D) 4;3,000
• E) 4;8,000

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Definitions:

Interest-Rate Cost

The cost incurred by an individual or entity due to borrowing funds, determined by the rate of interest on the borrowed amount.

Marginal Utility

The additional enjoyment or gain achieved by consuming another unit of a good or service.

Total Utility

The total satisfaction or benefit derived from consuming a given quantity of goods or services.

Budget

An estimate of income and expenditure for a set period of time, often used by governments, businesses, and individuals to allocate resources.