If the Fed Mistakenly Believes That Potential Output Is Higher

question 92

True/False

If the Fed mistakenly believes that potential output is higher than it actually is, it might conduct inflationary monetary policy.

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Definitions:

Marginal Cost

The change in total production cost that comes from making or producing one additional unit of a good or service.

Fixed Cost

Costs that do not change with the level of output produced, such as rent and salaries.

Profits

The financial gain obtained when the revenue from business activities exceeds expenses, costs, and taxes.

Collusion

An agreement, usually secretive, between two or more parties to limit competition and manipulate prices for their benefit.