Exhibit 27-1 -Suppose the Fed Decides to Increase the Real Interest Rate

Multiple Choice

Exhibit 27-1
-Suppose the Fed decides to increase the real interest rate. According to the data in Exhibit 27-1,

A) the gap between real and potential GDP must be increasing.
B) inflation must be increasing.
C) inflation must be constant, and the gap between real and potential GDP must be increasing.
D) inflation must be increasing or the gap between real and potential GDP must be increasing.
E) inflation must be increasing, and the gap between real and potential GDP must be increasing.