If inflation is below the central bank's targeted inflation rate, the central bank will_________ the real interest rate which will lead to a _________ real GDP.
A) raise; higher.
B) lower; higher
C) lower; lower
D) raise; lower

Question

Quizplus · Accepted Answer

When inflation is below the central bank's target, the central bank is likely to lower the real interest rate to stimulate borrowing and investment, which in turn can lead to higher real GDP by boosting economic activity.

If Inflation Is Below the Central Bank's Targeted Inflation Rate