If, in addition,
𝑅
𝑡
=
𝑟
¯
, short run output is negative .

Question

If, in addition, 
𝑅
𝑡
=
𝑟
¯
, short run output is negative .

BlackTom AI · Accepted Answer

Opening note: the item provided is incomplete for a standard multiple-choice analysis because there are no answer options to evaluate.

What is given: a question fragment states 'If, in addition, Rt = r̄, short run output is negative.' and the answer field contains a single entry 'is positive' with an empty list of answer options.

Step-by-step reasoning:
- First, isolate the core economic relationship implied here. In many macroeconomic models, Rt denotes the policy or real interest rate, and r̄ (r-bar) denotes the natural rate of interest. When Rt equals r̄, the real interest rate aligns with the economy’s neutral rate, which typically implies no policy-induced output gap: the economy tends toward its potential output.
- If the policy rate equals the natural rate, the usual expectation is that there is no pressure to expand or contract aggregate demand solely from the interest-rate stance. Therefore, the short-run output would be expected to be at or very close to potential, i.e., the output gap would be zero, not negative or positive.
- The statement 'short run output is negative' (the part after 'If, in addition, Rt = r̄,') asserts a negative output gap. Given the standard interpretation above, this would generally be incorrect because Rt = r̄ suggests neutral stance with output near potential, unless other shocks are at play that are not specified in the fragment.
- The provided answer option 'is positive' would, in most standard analyses, also be inconsistent with Rt = r̄ alone, since a positive output gap would require demand or supply conditions that push actual output above potential, contradicting a neutral policy stance implied by Rt = r̄ unless other dynamics are specified.
- However, because there are no full answer choices presented, we cannot definitively classify any option as correct or incorrect within this question as shown. The absence of options prevents checking which specific statement is being judged.

In summary, based on the common interpretation that Rt = r̄ signals no demand-side or supply-side pressure altering the output gap, the expectation would be that short-run output is neither negative nor positive relative to potential (i.e., the output gap is zero). Without complete answer choices, we cannot conclude which option is correct, and the standalone statement 'short run output is negative' conflicts with the usual implication of Rt = r̄ unless additional context is provided.

FA25 ECON 302 002 Final Exam (Chapters 7-9, 11-13, 19-20): Sample Questions

If, in addition, 𝑅 𝑡 = 𝑟 ¯ , short run output is negative .

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