If the Natural Unemployment Rate Is 7 Percent and the Current

question 130

Multiple Choice

If the natural unemployment rate is 7 percent and the current unemployment rate is 5 percent,then the economy is

• A) producing a level of Real GDP that is greater than the level of natural Real GDP.
• B) in a recessionary gap.
• C) producing a level of Real GDP that is less than the level of natural Real GDP.
• D) a and b
• E) b and c

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Definitions:

Present Value

The valuation of an expected income stream determined by discounting the future income to the present using a discount rate.

Income Stream

A regular flow of money from an investment, property, or other financial assets.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing or the real yield on savings.

Perfect Substitute

Two or more goods that can be used interchangeably with no loss of utility by the consumer.