Suppose the Economy Is Initially Operating at the Natural Level

question 54

Multiple Choice

Suppose the economy is initially operating at the natural level of output.Now,suppose the central bank reduces the rate of nominal money growth by 3%.Given this information,we would expect that

• A)the real interest rate will fall by less than 3% in the medium run.
• B)the real interest rate will fall by exactly 3% in the medium run.
• C)the real interest rate will increase by exactly 3% in the medium run.
• D)none of the above

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Definitions:

Belief Perseverance

The finding that once beliefs form, they are resistant to change, even if the information on which they are based is discredited

Effort Justification

A phenomenon whereby individuals rationalize the effort and resources they put into achieving a goal by increasing their appreciation or valuation of the goal, especially when the effort was substantial.

Belief Perseverance

The psychological phenomenon where individuals cling to their initial views or explanations despite the confrontation with new, contradictory information.

Social Psychology

The examination of individuals' thoughts, emotions, and actions within societal settings through scientific methods.