Refer to Figure 11-2. Short run output is maximized at

Suppose that at the beginning of a loan contract, the real interest rate is 4% and expected inflation is currently 6%. If actual inflation turns out to be 7% over the loan contract period, then

A) lenders gain 1% of the loan value. B) borrowers lose 3% of the loan value. C) lenders gain 3% of the loan value. D) borrowers gain 1% of the loan value.

The longer the "pass-through" period following a devaluation, the faster the desirable balance of trade effects of a devaluation will appear on quantities traded

Indicate whether the statement is true or false