If Potential Output Equals 4,000 and Short-Run Equilibrium Output Equals

question 101

Multiple Choice

If potential output equals 4,000 and short-run equilibrium output equals 3,500, there is a ________ gap and the Federal Reserve must ________ real interest rates in order to close the gap.

• A)recessionary; raise
• B)recessionary; reduce
• C)recessionary; not change
• D)expansionary; raise

---

Definitions:

Cumulative

Describing something that increases or accumulates over time, often used in reference to dividends or data.

Par Value

A nominal or face value assigned to securities, such as stock, which has no direct relation to their market value.

Paid-in Capital

The amount of money that a company receives from issuing shares of stock, representing the funds contributed by shareholders in exchange for ownership interest.

Treasury Stock

These are the repurchased shares held by the issuing company, removing them from the market but not from existence.