-If the Economy's Potential Output Is $550 Billion and the Equilibrium

question 34

Multiple Choice

-If the economy's potential output is $550 billion and the equilibrium interest rate is 7 percent:

• A)there is an inflationary gap of $50 billion
• B)the monetary authorities should increase the money supply from $50 billion to $110 billion
• C)the economy is operating at its potential output
• D)there is a recessionary gap of $200 billion
• E)there is an inflationary gap of $200 billion

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Definitions:

Negotiability

The quality of a financial instrument that allows it to be transferred or assigned from one party to another in exchange for value.

Sum Certain In Money

A specified, fixed, or exact amount of money that is owed or due to be paid under a contract or agreement.

Enforceable Contract

a valid agreement between parties that can be legally upheld and compelled in a court of law.

Payment

The transfer of money or goods from one party to another as a fulfillment of a transaction or obligation.