Beginning at Long-Run Equilibrium in the Dynamic Model of Aggregate

question 20

Multiple Choice

Beginning at long-run equilibrium in the dynamic model of aggregate demand and aggregate supply, in the periods after a permanent reduction in the central bank's inflation target, the DAS shifts downward because:

• A) the natural level of output increases in response to the lower rates of inflation.
• B) the deviation of output from the natural level of output increases as a result of lower rates of inflation.
• C) lower rates of inflation generate negative supply shocks.
• D) expectations of inflation decrease as a result of lower inflation in previous periods.

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Definitions:

Control Limits

Predetermined boundaries in statistical process control that indicate if a process is in a state of control or out of control.

Chance Variation

Variations in observations or data that result from random effects or events that cannot be controlled or predicted.

Sample Mean

The average value of a sample set of numbers, calculated by adding all the values and dividing by the number of values.

Control Limits

The boundaries in a control chart beyond which points indicate a statistical process is out of control.