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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An increase in aggregate demand in the economy will have what effect on macroeconomic equilibrium in the long run?
A) The price level will rise, and the level of GDP will fall. B) The price level will rise, and the level of GDP will be unaffected. C) The price level will fall, and the level of GDP will fall. D) The price level will fall, and the level of GDP will rise.
Demand-pull inflation can result when
A) policymakers set an unemployment target that is too high. B) a persistent budget deficit is financed by selling bonds to the public. C) a persistent budget deficit is financed by selling bonds to the central bank. D) workers get numerous wage increases.