If a Shock Results in a Positive Output Gap and the Government's

question 40

Multiple Choice

If a shock results in a positive output gap and the government's policy choice is to do nothing,

• A) the central bank will immediately increase the money supply and close the output gap.
• B) the price level will fall, the interest rate will fall, and output will rise, closing the gap.
• C) the government will immediately implement expansionary fiscal policy.
• D) the economy will be prevented from returning to equilibrium.
• E) it will be detrimental to the economy.

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Definitions:

Relational Proposition

A statement that establishes a relationship between two or more concepts, often used to understand how individuals perceive relationships in the world.

Asch's Studies

A series of experiments that demonstrated the power of conformity in groups, where individuals often agreed with an incorrect answer to match the majority's view.

Conformity

The act of aligning one's attitudes, beliefs, or behaviors to group norms or expectations.

Minority Of One

A situation where a single individual's opinion, behavior, or belief stands in opposition to that of the larger group.