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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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
The short run:
A. is typically defined by the process cycle of the particular firm. B. is defined by the presence of a fixed cost for a firm. C. is generally less than a year. D. All of these are true.
One criticism of monetary policy based on a predetermined steady growth rate in money supply is that
A) wages and prices are sufficiently flexible to allow the economy to restore the natural level of Real GDP on its own. B) the total lag in monetary policy may be too long to allow for effective monetary policy. C) changes in velocity, if not accounted for, can then be a source of price instability. D) a and b E) all of the above
Monetary and price instability will
What will be an ideal response?