When there is a recessionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.
A. decline; lower; decline
B. increase; raise; decline
C. decline; lower; expand
D. decline; raise; decline
Answer: C
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The long-run Phillips curve shows the relationship between ________ and ________ when the economy is at full employment
A) the inflation rate; the nominal interest rate B) the unemployment rate; real GDP C) potential GDP; the natural unemployment rate D) the inflation rate; the unemployment rate E) the natural inflation rate; the unemployment rate
The democratic political process operating at the national level tends to result in
A) balanced budgets. B) deficits. C) surpluses. D) surpluses alternating with deficits in a countercyclical manner.
Refer to Figure 13-11. What is the amount of excess capacity?
A) Q3 - Q2 units B) Q3 - Q1 units C) Q4 - Q2 units D) Q4 - Q3 units
An increase in interest rates will cause investment to
A) increase. B) decrease. C) not change. D) move erratically, depending on the interest rate effect on saving.