Suppose you purchase a $5,000 bond that pays 7 percent interest annually and matures in five years. If the inflation rate in recent years has been steady at 3 percent annually, what is the estimated real rate of interest? If the inflation rate during the next five years remains steady at 3 percent, what real rate of return will you earn? If the inflation rate during the next five years is 6 percent, what will happen to your real rate of return?

*10. How are the following related to each other?

a. the long-run equilibrium rate of output

b. the potential real GDP of the economy

c. the output rate at which the actual and natural rates of unemployment are equal