Suppose That the Economy Is Producing Below Potential GDP and the Fed

question 226

Multiple Choice

Suppose that the economy is producing below potential GDP and the Fed implements the correct change in monetary policy,but not until after the economy has passed the trough of the recession.Then

• A)the Fed's contractionary policy will result in too large of a decrease in GDP.
• B)the Fed's contractionary policy will result in too small of a decrease in GDP.
• C)the Fed's expansionary policy will result in too small of a decrease in GDP.
• D)the Fed's expansionary policy will result in too large of an increase in GDP.

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Definitions:

Labor

The effort involving both bodily and intellectual activities applied in generating goods and services.

AVC

Average Variable Cost, the total variable cost divided by the quantity of output produced.

AFC

Average fixed cost, or the total fixed costs divided by the quantity of output produced, indicating how fixed costs per unit change with production levels.

MC

The additional cost incurred for producing one more unit of a good or service; it's synonymous with marginal cost.