Refer to the Accompanying Figure

question 105

Multiple Choice

Refer to the accompanying figure. Starting from long-run equilibrium at point C, a favorable inflation shock that decreases inflation from π to π¹ will lead to a short-run equilibrium at point ________ creating ________ gap.

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

---

Definitions:

Federal Budget

The government’s estimation of revenue and spending for a forthcoming fiscal year that includes allocations of funds to various federal departments and agencies.

Defense Spending

Government expenditure on military forces and activities, including salaries, equipment, construction, and research and development.

Means of Production

The facilities, resources, and tools used to produce goods and services in an economy, often discussed in Marxist economic theories.

Economic Role

The function or position that an entity (such as an individual, firm, or government) plays within the larger economic system.