An increase in supply will cause a decrease in price, which will cause an increase in demand

Refer to the figure above. For an economy starting from the potential output a decrease in planned investment in the short run results in a

A. Recessionary output gap B. Expansionary output gap C. Increase in potential output D. Decrease in potential output

Suppose the equilibrium real federal funds rate is 3 percent, the target rate of inflation is 3 percent, the current inflation rate is 1 percent, and real GDP is 8 percent below potential real GDP

If the weights for the inflation gap and the output gap are both 1/2, then according to the Taylor rule the federal funds target rate equals A) -3 percent. B) -1 percent. C) 3.5 percent. D) 7 percent.