If Prices Are Sticky and There Are No Aggregate Demand

question 118

Multiple Choice

If prices are sticky and there are no aggregate demand shocks, and if the Fed raises the interest rate, ________ and ________.

• A) unemployment falls; potential output falls
• B) the real interest rate falls; short-run output falls
• C) the unemployment rate rises; short-run output rises
• D) the real interest rate rises; short-run output falls
• E) the real interest rate falls; current output falls

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Definitions:

Rational Individuals

People who make decisions by logically evaluating options based on their preferences and the likely outcomes to maximize their benefit or utility.

Production Possibilities Curve

A graphical representation that shows the maximum quantity of two products that can be produced within a given set of resources, highlighting the trade-offs and opportunity costs.

Confusion

A lack of understanding or clarity about a situation, concept, or instruction.

Correlation And Causation

A relationship between two variables does not imply that one causes the other; correlation indicates a relationship, whereas causation indicates a cause-and-effect relationship.