When there is an expansionary gap, inflation will ________, in response to which the Federal Reserve will ________ real interest rates, and output will ________.

A professor changes the penalty for cheating on exams from getting a 0 on the exam to getting an F in the course. The professor has

A) decreased the marginal benefit of cheating. B) recognized that students don't make rational choices. C) increased the marginal cost of cheating. D) made all the students act in the social interest. E) recognized that students don't respond to incentives.

Critics of the Federal Reserve maintain that, to correct the credibility problem of monetary policy, the Fed should:

a. tighten monetary policy. b. be required to maintain a growth rate of the money supply that is fixed by law. c. give more power to the Federal Open Market Committee. d. ignore public opinion and establish more discretionary power over monetary policy. e. merge with the U.S. Treasury and be dissolved as an independent agency.