The economy pictured in the figure below has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 
A. recessionary; B
B. recessionary; C
C. recessionary; A
D. expansionary; A
Answer: C
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The law of supply states that, other things remaining the same,
A) demand increases when supply increases. B) if the price of a good increases, firms buy less of it. C) if the price of a good increases, the quantity supplied increases. D) as people's income increase, the supply of goods increases. E) if the price of a good increases, the supply increases.
The level of real GDP the economy produces at full employment is called
A) sustainable GDP. B) nominal GDP. C) potential GDP. D) maximum GDP. E) Lucas GDP.
At a given nominal rate of interest, when spending is equal to output and there is uncovered interest parity, we have:
A) real exchange rate parity. B) equilibrium in the goods market and in the forex market. C) stable inflation and low unemployment. D) depreciation of the home currency.
Demand is said to be inelastic if a(n) ______.
a. 9 percent price increase causes a 11 percent increase in quantity demanded b. 5 percent price increase causes 6 percent reduction in quantity demanded c. 8 percent price increase causes an 8 percent reduction in quantity demanded d. 10 percent price increase causes a 2 percent reduction in quantity demanded