The economy pictured in the figure has a(n) ________ gap with a short-run equilibrium combination of inflation and output indicated by point ________. 

We all behave as speculators in our economic transactions

A) because everyone likes to gamble. B) because we all act in the hope of benefits from a correct anticipation of future events. C) unless we never buy on credit. D) unless we use the services of middlemen.

If the Federal Reserve wants to reduce inflation from 4 percent to 3 percent permanently, how can that goal be achieved, and what impact will that have on employment in the short run and the long run? Support your answer with a graph of the Phillips

curve in the short run and the long run.