Equilibrium in the loanable funds market is initially present at a stable price level (zero inflation) and a nominal (and real) interest rate of 4 percent. If a shift to expansionary monetary policy eventually leads to actual and expected inflation of 6 percent,
a. both the nominal and real interest rates will rise to 10 percent.
b. the nominal interest rate will rise to 10 percent, but the real interest rate will remain at 4 percent.
c. the real interest rate will rise to 10 percent, but the nominal interest rate will remain at 4 percent.
d. both the real and nominal interest rates will remain at 4 percent.
B
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If real GDP is less than potential GDP, then the ________ and the price level ________
A) aggregate demand curve shifts leftward; rises B) aggregate demand curve shifts rightward; falls C) aggregate supply curve shifts leftward; rises D) aggregate supply curve shifts rightward; falls E) amount of potential GDP increases; falls
With adaptive expectations, the expected inflation rate for the current year ________ the actual inflation rate for the previous year
A) is greater than B) is less than C) is equal to D) is unrelated to
Suppose a production possibilities frontier (PPF) has been plotted on a graph. If the horizontal axis of the graph measures the output of capital goods and the vertical axis measures the output of consumer goods, then a point outside the PPF represents: a. a smaller quantity of consumer goods than that represented by a point inside the PPF. b. an inefficient output combination of the two goods
in the economy. c. an unattainable output combination of the two goods in the economy. d. an output combination of more consumer goods than capital goods. e. a smaller quantity of capital goods than that represented by a point inside the PPF.
Market risk is:
A. risk that is broadly shared by the entire market or economy. B. risk that is unique to a particular company or asset. C. likely to be predictable, and generally reflected in interest rates. D. the reason the economy suffers inflation from time to time.