Figure 12.7: Output

question 15

Multiple Choice

Figure 12.7: Output
-Consider Figure 12.7. You are chairman of the Federal Reserve in 1975. You believe potential output follows the dotted line after 1973, but in actuality, it follows the line denoted "True potential output." The current state of the economy is given by the curve "Actual output." Given the information in the figure, you ________, because you believe the economy is in a ________, but your advice instead ________.

• A) lower interest rates; recession; accelerates inflation
• B) raise interest rates; recession; accelerates inflation
• C) keep interest rates the same; boom; accelerates inflation
• D) lower interest rates; boom; increases unemployment
• E) Not enough information is given.

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Definitions:

Dementia

A chronic or persistent disorder of the mental processes caused by brain disease or injury and marked by memory disorders, personality changes, and impaired reasoning.

Integrity Versus Despair

A stage in Erik Erikson's theory of psychosocial development, occurring in late adulthood, where individuals reflect on their life and can feel either a sense of fulfillment or dissatisfaction.

Senior Moment

A colloquial term for a temporary lapse in memory or confusion that is often humorously attributed to aging.

Erikson

A psychologist known for his theory on the psychological development of human beings, which consists of eight stages from infancy to adulthood.