Suppose that with a real interest rate of 3%, no output gap exists in the economy. If the real interest rate is below 3%, the economic forecast predicts:
A)a recessionary output gap.
B)deflation in the economy.
C)a positive output gap.
D)decreased sales forecasts.

Question

Quizplus · Accepted Answer

A real interest rate below 3% would typically lead to lower borrowing costs, encouraging spending and investment. This can push demand above the economy's potential output, creating a positive output gap, where demand exceeds the economy's capacity to produce.

Suppose That with a Real Interest Rate of 3%, No