In the figure above, assume that output is $10.5 trillion, while potential output is $12 trillion. If a fiscal stimulus package is implemented quickly, raising output to $12 trillion, while inflation remains constant at one percent, then the figure implies that the real interest rate will be ________ percent. A) 1.5 B) zero C) one D) 0.5 E) 2.5 Real InterestRate, r(percent)2.52.01.5Real InterestRate, r(percent)NN-5052.52.01.5InflationRate,(percent)3.02.01.01.0 2.0 3.0 Inflation Rate,(percent)9.5 10.0 10.5MP9.5 10.0 10.512.0 12.5 13.0Aggregate Output, Y($ trillions)15₂12.0 12.513.0Aggregate Output, Y($ trillions)ADAD₁

Monetary policy curve states the relationship between the positive relationship between the real…

Answered: In the figure above, assume that output…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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In the figure above, assume that output is $10.5 trillion, while potential output is $12 trillion. If a fiscal stimulus package is implemented quickly, raising output to $12 trillion, while inflation remains constant at one percent, then the figure implies that the real interest rate will be ________ percent.
A) 1.5
B) zero
C) one
D) 0.5
E) 2.5

Real Interest
Rate, r
(percent)
2.5
2.0
1.5
Real Interest
Rate, r
(percent)
NN-
505
2.5
2.0
1.5
Inflation
Rate,
(percent)
3.0
2.0
1.0
1.0 2.0 3.0 Inflation Rate,
(percent)
9.5 10.0 10.5
MP
9.5 10.0 10.5
12.0 12.5 13.0
Aggregate Output, Y
($ trillions)
15₂
12.0 12.513.0
Aggregate Output, Y
($ trillions)
AD
AD₁

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