The economy shown here begins at a 0% output gap. A rise in the risk premium by 2% leads to:

A)unexpected inflation of 0%.
B)unexpected inflation of 1%.
C)a new output gap of -4%.
D)a new real interest rate of 1%.

Question

The economy shown here begins at a 0% output gap. A rise in the risk premium by 2% leads to:

A)unexpected inflation of 0%. 
B)unexpected inflation of 1%. 
C)a new output gap of -4%. 
D)a new real interest rate of 1%.

Quizplus · Accepted Answer

The Answer of The economy shown here begins at a 0% output gap. A rise in the risk premium by 2% leads to:

A)unexpected inflation of 0%. 
B)unexpected inflation of 1%. 
C)a new output gap of -4%. 
D)a new real interest rate of 1%.

The Economy Shown Here Begins at a 0% Output Gap