Suppose the Output Gap Is Zero,and Policy Makers Wish to Reduce

question 57

Multiple Choice

Suppose the output gap is zero,and policy makers wish to reduce the inflation rate from 10 percent to 5 percent.Which of these policies seems best?

• A)contractionary policies to reduce output at least 5 percent below potential output
• B)a convincing declaration of the inflation rate target,so that expected inflation falls to 5 percent
• C)no policy action;inflation will fall on its own,eventually
• D)no policy action;inflation will converge to its long-run rate,regardless of policy
• E)price and wage controls to counteract their stickiness

---

Definitions:

Inventory Method

An accounting technique used to determine the cost of goods sold and the end-of-period inventory valuation.

Retrospective Approach

A method of applying certain changes in accounting policies to past periods as if the new policy had always been in place.

LIFO

Last In, First Out, an inventory valuation method where the most recently acquired items are assumed to be sold first, affecting cost of goods sold and inventory value on the balance sheet.

Basic Accounting Equation

The fundamental equation representing the relationship between assets, liabilities, and owner's equity (Assets = Liabilities + Owner's Equity).