If a Shock Results in a Positive Output Gap and the Government's

question 52

Multiple Choice

If a shock results in a positive output gap and the government's policy choice is to do nothing,

• A) the central bank will immediately increase the money supply and close the output gap.
• B) the price level will fall, the interest rate will fall, and output will rise, closing the gap.
• C) the government will immediately implement expansionary fiscal policy.
• D) the economy will be prevented from returning to equilibrium.
• E) it will be detrimental to the economy.

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Definitions:

Long-term Retention

The ability to maintain and utilize information over extended periods of time, significant for learning and memory.

Epinephrine

Also known as adrenaline, a hormone and neurotransmitter involved in regulating visceral functions (e.g., heart rate, blood pressure) and in the body's fight-or-flight response.

Cortisol

A steroid hormone released by the adrenal glands in response to stress, playing a crucial role in the body's stress response and metabolism.

Neural Connections

The links between neurons in the brain through which they communicate with each other.