Use the Following to Answer Questions

question 308

Multiple Choice

Use the following to answer questions:
Figure: Inflationary and Recessionary Gaps
-(Figure: Inflationary and Recessionary Gaps) Refer to Figure: Inflationary and Recessionary Gaps. If the economy is in short-run equilibrium at Y₁ in panel (a) , to return to potential output at Y_P policy makers should use:

• A) contractionary policy.
• B) expansionary policy.
• C) policies to shift the SRAS to the left.
• D) policies to shift the LRAS to the left.

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Definitions:

Prior Probabilities

Represent the probabilities of different outcomes before any evidence is considered, often used in Bayesian statistics.

Bayes' Law

A statistical theorem that describes the probability of an event, based on prior knowledge of conditions related to the event.

Posterior Probability

The probability of an event or hypothesis being true after taking into consideration new evidence or information.

Prior Probability

The probability of an event or hypothesis before new evidence is taken into account.