Fiscal and Monetary Policy Actions in the Short Run

Multiple Choice

If an economy is in long-run equilibrium, which of the following combinations of policy actions will necessarily result in inflation in the short run?

• Maintaining the status quo of current policies
• Decreasing administered interest rates and increasing government spending

• Implementing contractionary monetary or fiscal policies
• Implementing policies that focus on increasing productivity

Multiple Choice

What is an inflationary gap characterized by?

• Output is below potential and unemployment is above the natural rate.

• Output is equal to potential and unemployment is at the natural rate.

• 
  Output is above potential and unemployment is below the natural rate.

• Output is above potential and unemployment is above the natural rate.

Labelling

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Discount Rate

Positive Output Gap

Long Run Equilibrium