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Suppose the economy has been at full employment for the past two years with a 4 percent inflation rate, and both the money supply and money demand were growing at 4 percent a year. If the Federal Reserve unexpectedly increases the rate of money growth to 6 percent, the following sequence of events occurs 1) real interest rates fall, investment spending increases, GDP increases, unemployment falls, and prices rise. real interest rates fall, investment spending decreases, GDP increases, 2) unemployment falls, and prices rise. real interest rates rise, investment spending decreases, GDP decreases, 3) unemployment increases, and prices fall. real interest rates rise, investment spending increases, GDP decreases, 4) fall. unemployment increases, and prices

Suppose the economy has been at full employment for the past two years with a 4 percent inflation rate, and both the money supply and money demand were growing at 4 percent a year. If the Federal Reserve unexpectedly increases the rate of money growth to 6 percent, the following sequence of events occurs 1) real interest rates fall, investment spending increases, GDP increases, unemployment falls, and prices rise. real interest rates fall, investment spending decreases, GDP increases, 2) unemployment falls, and prices rise. real interest rates rise, investment spending decreases, GDP decreases, 3) unemployment increases, and prices fall. real interest rates rise, investment spending increases, GDP decreases, 4) fall. unemployment increases, and prices

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter22: Money Growth And Inflation
Section: Chapter Questions
Problem 5CQQ
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Suppose the economy has been at full employment for the past two years with a 4 percent inflation rate, and both the money supply and money demand were growing at 4 percent a year. If the Federal Reserve unexpectedly increases the rate of money growth to 6 percent, the following sequence of events occurs 1) real interest rates fall, investment spending increases, GDP increases, unemployment falls, and prices rise. real interest rates fall, investment spending decreases, GDP increases, 2) unemployment falls, and prices rise. real interest rates rise, investment spending decreases, GDP decreases, 3) unemployment increases, and prices fall. real interest rates rise, investment spending increases, GDP decreases, 4) fall. unemployment increases, and prices
Transcribed Image Text:Suppose the economy has been at full employment for the past two years with a 4 percent inflation rate, and both the money supply and money demand were growing at 4 percent a year. If the Federal Reserve unexpectedly increases the rate of money growth to 6 percent, the following sequence of events occurs 1) real interest rates fall, investment spending increases, GDP increases, unemployment falls, and prices rise. real interest rates fall, investment spending decreases, GDP increases, 2) unemployment falls, and prices rise. real interest rates rise, investment spending decreases, GDP decreases, 3) unemployment increases, and prices fall. real interest rates rise, investment spending increases, GDP decreases, 4) fall. unemployment increases, and prices
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