Since Potential GDP Defines Aggregate Supply in the Long Run

question 17

Multiple Choice

Since potential GDP defines aggregate supply in the long run, it makes sense that

• A) only monetary policy is neutral in the long run, because fiscal policy can influence the determinants of potential GDP in the short run.
• B) only fiscal policy is neutral in the long run, because monetary policy can influence the determinants of potential GDP in the short run.
• C) both monetary policy and fiscal policy are neutral in the long run, because neither can influence the determinants of potential GDP in the short run.
• D) both monetary policy and fiscal policy are effective in the long run, because both can influence the determinants of potential GDP in the short run.
• E) none of the above.

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Definitions:

Stock Market

The aggregation of buyers and sellers of stocks, which are shares of ownership in companies, allowing for the buying, selling, and trading of these shares.

Analogy

An analysis that contrasts two items, usually aimed at explaining or making something clear.

Logical Appeal

A method of persuasion that uses reason and logic to convince an audience.

Cause And Effect

Cause and effect is a relationship between events or things, where one is the result of the other or others; a combination of action and reaction.