Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Suppose the inflation rate is currently equal to the Reserve Bank's target and the economy is at a long run equilibrium. Then there is a
Suppose the inflation rate is currently equal to the Reserve Bank's target and the economy is at a long run equilibrium. Then there is a significant fall in the price of imported food due to good harvests overseas, assuming the Reserve Bank keeps the inflation target unchanged, which statement best describes what happens in the short run and/or in the long run to inflation and real GDP? a. In the long run, inflation will be lower than the Reserve Bank's target and potential output will increase. b. In the long run, inflation will be lower than the Reserve Bank's target and output will return to potential output. c. In the long run, inflation will return to the Reserve Bank's target and output will return to potential output. d. In the short run, inflation rises and output increases. e. In the short run, inflation falls and output remains unchanged
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started