Narnia, a developed open economy, has been experiencing double-digit inflation and a decelerating output growth for the last four quarters. jonathan mathews and ben hall, two market analysts, are discussing the various measures that can be adopted by the concerned authorities to curb inflation and boost production in the economy. jonathan thinks that the central bank should raise the nominal interest rate to control inflation. this, he feels, will also contribute to an increase in the aggregate supply of funds available for investment in the economy. ben however disagrees. according to him, an increase in the nominal interest rate will lower investment, leading to a decline in aggregate production by firms. this, in turn, will increase the shortage in the economy and prices will rise further. when the interest rate was actually increased, the aggregate supply of loanable funds in the economy did not increase as much as jonathon expected. which of the following, if true, would explain this outcome?
a. the wage differential between skilled and unskilled workers in narnia was very high.
b. dividend payments by narnian firms decreased substantially in the last year.
c. narnia is one of the largest exporters of defense equipment in the world.
d. the consumption of durable goods increased by 12 percent last year.
e. the government budget deficit increased by $10 billion this year.