Question

Suppose the economy is producing at the natural rate of output. An open market purchase of bonds by the Fed will cause ________ in real GDP the the short run and ________ in inflation in the short run, everything else held constant.

Answer 1

Answer:

The correct answers that fills the gap are: an increase; an increase.

Explanation:

Real GDP is based on one-year prices and allows a comparison of the production of a given country in different periods of time, by isolating changes in prices, perfectly reflecting net purchasing power, regardless of changes in Prices over time.