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If a shock results in a positive output gap and the government's policy choice is to do nothing,

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If a shock results in a positive output gap and the government's policy choice is to do nothing,

If a shock results in a positive output gap and the government's policy choice is to do nothing,
A) the central bank will immediately increase the money supply and close the output gap.
B) the price level will fall, the interest rate will fall, and output will rise, closing the gap.
C) the government will immediately implement expansionary fiscal policy.
D) the economy will be prevented from returning to equilibrium.
E) it will be detrimental to the economy.

Textbook

Macroeconomics, Canadian Edition

Edition: 5^th

Author: Williamson

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