If the Economy Is in a Long-Run Equilibrium When the Federal

question 52

Multiple Choice

If the economy is in a long-run equilibrium when the Federal Reserve decides that its inflation target is too low and chooses to raise it,________.

• A)monetary policy would ultimately lead to higher potential output but real interest rates and inflation would be unaffected in the long run
• B)monetary policy would ultimately lead to higher inflation but real interest rates and potential output would be unaffected in the long run
• C)monetary policy would ultimately lead to higher interest rates but potential output and inflation would be unaffected in the long run
• D)monetary policy would ultimately lead to higher interest rates,potential output,and inflation in the long run
• E)none of the above

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Definitions:

Economic Profit

The difference between the total revenue earned from production and the total costs (including both explicit and implicit costs) involved in the creation of that production.

Excess Profit

Profit earned by a firm that exceeds the normal profit level, often due to monopolistic power or market inefficiencies.

Marginal Revenue

The additional income generated from selling one more unit of a good or service.

Monopolistic Competitor

A firm in a market structure where many companies sell products that are similar, but not identical, allowing for competition on factors other than price.