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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Indicate whether the statement is true or false
The most direct effect of an increase in the growth rate of average labor productivity would be an increase in
A) the inflation rate. B) the unemployment rate. C) the long-run economic growth rate. D) imported goods.
An increase in autonomous investment in a small open economy will cause ________
A) a trade surplus to shrink B) a trade deficit to increase C) lower net capital outflows D) all of the above E) none of the above
In the two-period model, the budget constraint is kinked for all of these reasons, except
A) the real interest rate is greater than zero. B) there are costs to banks from lending and borrowing. C) there is asymmetric information in the credit market. D) there is limited commitment in the credit market.