If the Output Gap Is Constant at Minus 2 and the Inflation

question 78

Multiple Choice

If the output gap is constant at minus 2 and the inflation rate has fallen from 6 percent to 5 percent,then next period's short-run aggregate supply curve might be ________.

• A)π = 5 - 0.5 (13 - 15)
• B)π = 5 + 0.5 (13 - 15)
• C)π = 4 + 0.5 (13 - 15)
• D)π = 5 + 2 (11 - 15)
• E)none of the above

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Definitions:

GDP Deflator

A measure of the level of prices of all new, domestically produced, final goods and services in an economy in a year, used to deflate nominal GDP to real GDP.

Real GDP

Gross Domestic Product adjusted for inflation, providing a more accurate representation of an economy's size and growth over time.

Percentage Change

A mathematical calculation to determine the degree of change over time, expressed as a percentage.

Imports

Goods or services brought into one country from another, contributing to the supply in the domestic market and affecting the nation's trade balance.