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Suppose that the inflation rate rises If the Federal Reserve wants to reduce investment

Suppose that the inflation rate rises. If the Federal Reserve wants to reduce investment to slow the rateof growth in the economy, it is not enough to raise the nominal interest rate. The Fed must also do which of the following?

(A) Raise the real interest rate by raising the nominal interest rate less than the increase in the inflation rate.

(B) Lower the real interest rate by raising the nominal interest rate less than the increase in the inflation rate.

(C) Lower the real interest rate by raising the nominal interest rate more than the increase in the inflation rate.

(D) Raise the real interest rate by raising the nominal interest rate more than the increase in the inflation rate.

(E) Keep the real interest rate constantby raising the nominal interest rate exactly as much as theincrease in the inflation rate.

Apr 26 2018 View more View Less

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