If the Central Bank Moves to Reduce the Inflation Rate

question 159

Multiple Choice

If the central bank moves to reduce the inflation rate in an economy that initially is at a long-run equilibrium,then,in the short run,output _________ and inflation _________.

• A) decreases;increases
• B) decreases;does not change
• C) increases;increases
• D) increases;decreases
• E) increases;does not change

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Definitions:

Competitive Market

A market structure characterized by a large number of buyers and sellers, where no single participant can significantly influence price or supply.

Marginal Cost

The change in total cost that arises when the quantity produced is incremented by one unit.

Average Variable Cost

The variable cost per unit of output, calculated by dividing total variable costs by the quantity of output.

Marginal Cost

The price of fabricating another unit of a good or service.