When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline
B. increase; raise; decline
C. decline; lower; expand
D. decline; raise; decline
Answer: C
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In the late 1990s, Thailand, Malaysia, and Indonesia all experienced sharp declines in the value of their currencies; this resulted in economic instability and crisis. The collapse in the values of their currencies undermined their development by:
A. decreasing political instability. B. decreasing population growth. C. increasing corruption. D. reducing investment.
Explain why an increase in a person in debt who experiences a wage increase that is exactly equal to the inflation rate may make him or her better off.
What will be an ideal response?
An example of a regressive tax is the
A. personal income tax. B. corporate income tax. C. Social Security tax. D. state inheritance tax.
Sally will earn $30,000 this year and $40,000 next year. The real interest rate is 20% between this year and next year; she can borrow or lend at this rate. She has no wealth at the start of this year and plans to finish next year having consumed everything she possibly can. She would like to consume the same amount this year as next year. The inflation rate is 0%.(a)How much should Sally save this year? How much will Sally consume in each of the two years?(c)How would your answers change if the real interest rate was 40%?
What will be an ideal response?