Suppose an Economy Exhibits a Large Unexpected Decrease in Productivity

question 48

Multiple Choice

Suppose an economy exhibits a large unexpected decrease in productivity growth that lasts for a decade; however, monetary policymakers are slow to recognize that the change is to potential-not current-output, and they interpret the decrease in output as a recession that leads current to fall below potential output. In this scenario, policymakers believe that ________ pressures are building and incorrectly respond by ________ interest rates, sending the economy into a(n) ________ gap.

• A) inflationary; raising; inflationary
• B) inflationary; reducing; inflationary
• C) inflationary; raising; recessionary
• D) recessionary; reducing; inflationary
• E) Not enough information is given.

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Definitions:

Right to Privacy

A legal principle that protects individuals against intrusion into their personal and private affairs by the government, organizations, or other people.

Birth Control

Methods or devices used to prevent pregnancy as a part of family planning or reproductive health.

Abortion

The medical or surgical termination of a pregnancy, a contentious issue often involving legal, ethical, and personal considerations.

Exclusionary Rule

A legal principle in the United States that prevents the government from using evidence gathered in violation of the U.S. Constitution, particularly the Fourth Amendment, in criminal prosecutions.