As a result of higher expected inflation,
A) the demand and supply curves for loanable funds both shift to the right and the equilibrium interest rate usually rises.
B) the demand and supply curves for loanable funds both shift to the left and the equilibrium interest rate usually falls.
C) the demand curve for loanable funds shifts to the right, the supply curve for loanable funds shifts to the left, and the equilibrium interest rate usually rises.
D) the demand curve for loanable funds shifts to the left, the supply curve for loanable funds shifts to the right, and the equilibrium interest rate usually rises.
Question 2
When a temporary negative supply shock hits the economy, then in the short-run ________.
A) if the central bank focuses on stabilizing output, it cannot stabilize inflation
B) if the central bank focuses on stabilizing inflation, it cannot stabilize output
C) the divine coincidence does not hold
D) all of the above
E) none of the above
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