Suppose the Economy Is in Equilibrium with an Output Gap

question 36

Multiple Choice

Suppose the economy is in equilibrium with an output gap equal to zero and the actual inflation rate equals the expected inflation rate.If the economy experiences a positive demand shock,the output gap will ________ and the inflation rate will ________.

• A) increase; increase
• B) increase; decrease
• C) decrease; increase
• D) decrease; decrease

---

Definitions:

Owner's Equity

The amount of assets owned by a business's owner after all liabilities have been deducted.

Average Inventory

The mean amount of inventory a business holds over a certain period of time, calculated to understand inventory levels and turnover.

Financial Obligations

Commitments to pay money owed to lenders or creditors, which can include loans, leases, contracts, and other forms of debt.

Debt Ratio

A financial metric that measures the proportion of a company’s total debt to its total assets, indicating the company's leverage level.