If inflation does not adjust rapidly in the short run, then when the Federal Reserve decreases the nominal interest rate, the real interest rate in the short run will:
A. not change.
B. be determined by saving and investment decisions.
C. decrease.
D. increase.
Answer: C
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A) thinking at the margin B) making assumptions C) isolating variables D) all of the above
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What will be an ideal response?
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a. increases, so people must hold less money to purchase goods and services. b. increases, so people must hold more money to purchase goods and services. c. decreases, so people must hold more money to purchase goods and services. d. decreases, so people must hold less money to purchase goods and services.
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a. supply of loanable funds shifts right. b. supply of loanable funds shifts left. c. demand for loanable funds shifts right. d. demand for loanable funds shifts left.