Exhibit 27-1
-According to the data in Exhibit 27-1, if the gap between real GDP and potential GDP is 1 percent and inflation is 5 percent, the Fed will set the real interest rate at
A)10 percent.
B)2 percent.
C)11 percent.
D)8 percent.
E)9 percent.

Question

Exhibit 27-1 
-According to the data in Exhibit 27-1, if the gap between real GDP and potential GDP is 1 percent and inflation is 5 percent, the Fed will set the real interest rate at
A)10 percent. 
B)2 percent. 
C)11 percent. 
D)8 percent. 
E)9 percent.

Quizplus · Accepted Answer

The Fed will set the real interest rate at 11 percent to reduce inflation and bring real GDP back to potential GDP.

Exhibit 27-1 -According to the Data in Exhibit 27-1, If the Gap