The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

A)unexpected inflation of -1%.
B)an unchanged real interest rate.
C)a new output gap of -6%.
D)a new real interest rate of 4%.

Question

The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

A)unexpected inflation of -1%. 
B)an unchanged real interest rate. 
C)a new output gap of -6%. 
D)a new real interest rate of 4%.

Quizplus · Accepted Answer

The Answer of The economy shown here begins at a 0% output gap. Now suppose that manufacturers in China face rising costs of rubber as an input. This leads to:

A)unexpected inflation of -1%. 
B)an unchanged real interest rate. 
C)a new output gap of -6%. 
D)a new real interest rate of 4%.

The Economy Shown Here Begins at a 0% Output Gap