If Potential Output Equals 3,000 and Short-Run Equilibrium Output Equals

question 78

Multiple Choice

If potential output equals 3,000 and short-run equilibrium output equals 3,500, there is a(n) ________ 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

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Definitions:

Quitting

The act of stopping or giving up a habit or activity, often used in the context of cessation of smoking or substance use.

Inaccurate Estimates

Faulty calculations or judgments about the magnitude or frequency of a particular event or phenomenon.

Short Run

A time period in economic analysis during which at least one input is fixed, affecting the operation of firms and markets.

Farms

Land and the buildings on it used for the cultivation of crops and rearing of animals to produce food, wool, and other products.