An Output Gap with Y < Y^*

question 20

Multiple Choice

An output gap with Y < Y^*

• A)is known as an inflationary boom.
• B)tends to force prices up.
• C)occurs when there is excess demand.
• D)results in a loss of output due to unemployed resources.
• E)is desirable because it keeps wage costs low.

---

Definitions:

Perfect Information

A condition in decision-making where all relevant information is known to the decision-maker, including outcomes, events, and consequences for every choice.

Expected Payoff

The anticipated return or outcome of an investment, decision, or action, considering all possible results weighted by their probabilities.

Expected Opportunity Loss

The anticipated loss in value for choosing an option that is not the best, quantified as the difference between the best expected outcome and the expected outcome of the chosen option.

Expected Monetary Value

The weighted average of all possible outcomes of a decision, where each outcome is weighted by its probability of occurrence.