Suppose the Economy Is in Equilibrium with an Output Gap

question 58

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 negative demand shock,real GDP will become ________ potential GDP and the economy will move to the ________ along an existing Phillips curve.

• A) greater than; right
• B) greater than; left
• C) less than; right
• D) less than; left

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Definitions:

Retained Earnings

Profits that a company has reinvested in itself rather than paying out to shareholders as dividends.

Comprehensive Income

This term includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Comprehensive Income

A measure of all changes in equity of a company that result from recognized transactions and other economic events of the period other than those resulting from investments by and distributions to owners.

Unrealized Gains

Profits from investments that have increased in value but have not yet been sold for cash.