Assume That Because of a Long Policy Lag,the Fed Starts

question 164

Multiple Choice

Assume that because of a long policy lag,the Fed starts implementing expansionary monetary policy too late,i.e.,at a time when the economy is already healing itself.As a result,the economy will probably move from an initial

• A) recessionary gap to an even deeper recessionary gap.
• B) recessionary gap to an inflationary gap.
• C) inflationary gap to the natural level of Real GDP.
• D) inflationary gap to a recessionary gap.

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Definitions:

Economic Independence

The state of having sufficient personal wealth to live, without needing to work actively for basic necessities. For nations, it refers to the ability to sustain its economy without undue reliance on external support or resources.

Self-Government

The right of people to rule themselves autonomously.

Melting Pot

A metaphor for a society where many different types of people blend together as one, often used to describe the assimilation of immigrants into American culture.

U.S. Constitution

The supreme law of the United States, establishing the framework of the national government and the fundamental rights and freedoms of its citizens, ratified in 1787.