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Suppose president of a country nominated Mr. A to the central Bank Board, the arm of the government that sets monetary policy and interest rates.
Suppose president of a country nominated Mr. A to the central Bank Board, the arm of the government that sets monetary policy and interest rates. Mr. A has been an outspoken critic of current central bank policy, claiming that interest rates have been set too high. Assume that Mr. A is confirmed to the Board, successfully lowers interest rates, and spurs more investment spending by companies. However, annual inflation unexpectedly jumps to 5%. What is the impact on nominal and real GDP? Explain your answer.
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