Refer to the Accompanying Figure

question 3

Multiple Choice

Refer to the accompanying figure. An economy is currently in long-run equilibrium at point B, at an inflation rate of π', which is too high for to sustain economic growth. If an anti-inflationary policy is enacted, the economy will be in short-run equilibrium at point ________ creating ________ gap.

• A)A; an expansionary
• B)A; a recessionary
• C)D; a recessionary
• D)D; an expansionary

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Definitions:

Positive Correlation

A relationship between two variables in which both variables move in the same direction.

Decreases

Refers to a reduction or decline in the magnitude or value of a certain variable or quantity.

Decreases

A term indicating a reduction or decline in value, quantity, or extent.

Correlation Coefficients

Statistical measures that indicate the strength and direction of the relationship between two or more variables.