You Are an Economic Adviser Using the Fed Model to Analyze

Multiple Choice

You are an economic adviser using the Fed model to analyze the economy. Now suppose that manufacturers in China face rising costs of rubber as an input. What is the effect on the economy?

A) a rise in the real interest rate, an unchanged output gap, and unexpected deflation
B) a rise in the real interest rate, rising output, and unexpected inflation
C) an unchanged real interest rate, falling output, and unexpected inflation
D) an unchanged real interest rate, an unchanged output gap, and unexpected inflation