Suppose we assume that initially $\bar { a } = 0 , \bar { b } = 0.5 , R _ { t } = \bar { r } = 5 \%;$ if $\bar { a } _ { c }$
Rises 2 percent and the real interest rate falls 2 percent, short-run output:
A) falls 2 percent
B) rises 1 percent
C) rises 3 percent
D) falls 1 percent
E) does not change

Question

Quizplus · Accepted Answer

The correct answer is C because a rise in the expected rate of inflation and a fall in the real interest rate will lead to an increase in short-run output.

Suppose We Assume That Initially aˉ=0,bˉ=0.5,Rt=rˉ=5%;\bar { a } = 0 , \bar { b } = 0.5 , R _ { t } = \bar { r } = 5 \%;aˉ=0,bˉ=0.5,Rt​=rˉ=5%;

Suppose We Assume That Initially $\bar { a } = 0 , \bar { b } = 0.5 , R _ { t } = \bar { r } = 5 \%;$