From a long-run equilibrium with x = p = pe = 10,a reduction in nominal GDP growth to 4 percent results in the long run in output of ________ and inflation of ________.
A)100,10 percent
B)100,4 percent
C)94,4 percent
D)94,10 percent
E)96,4 percent

Question

Quizplus · Accepted Answer

In the long run, output returns to its natural level, which is 100. The reduction in nominal GDP growth to 4 percent implies that inflation will also be 4 percent, as nominal GDP growth equals real GDP growth plus inflation.

From a Long-Run Equilibrium with X = P = Pe